Debt a la carte, please<\/p>\n
The world has extended its empathy to the victims in Nanggroe
\nAceh Darussalam and North Sumatra of the devastating Dec. 26
\ndisaster with unprecedented generosity, donating money and other
\nforms of assistance.<\/p>\n
The global response has been overwhelming: More than $5
\nbillion has been pledged by governments and individuals who were
\ntouched by the human tragedy that affected not only Indonesia,
\nbut also other Indian Ocean countries, including India, Sri
\nLanka, the Maldives and Thailand. And this week, the elite Paris
\nClub of creditor countries will meet to consider debt relief
\nmeasures for Indonesia and Sri Lanka, the two countries most
\naffected by the disaster.<\/p>\n
In a time of crisis like this, temptation is bound to be
\nstrong for Indonesia to swallow everything that has been offered
\nby way of external assistance.<\/p>\n
Why would we turn down generous assistance from across the
\nworld when over 500,000 of our people are in such dire need of
\nbasic necessities?<\/p>\n
Indonesia, however, must move forward with the greatest
\ncaution: It was just a year ago that the country exited the
\nInternational Monetary Fund (IMF) special program, under which we
\nhad spent nearly six years because of our poor foreign debt
\nsituation. The country must exercise prudence in its borrowing
\npolicy -- especially in the face of fresh, well-meaning offers of
\nfinancial assistance -- lest we check back in to the IMF's
\nintensive care unit (ICU).<\/p>\n
As challenging as may be the rehabilitation of the two
\nprovinces and the lives of the people there, at the end of the
\nday, Indonesia still has to live within its means. Some of the
\ngovernmental assistance that has been pledged is in the form of
\nconcessional loans, and the debt relief measures from the Paris
\nClub are likely to be in the form of moratoria. These forms of
\nassistance will either add to our debt burden, defer it a few
\nyears down the road, or both.<\/p>\n
The administration of President Susilo Bambang Yudhoyono had
\nalready been engaged prior to the disaster in the uphill battle
\nto revive economic growth -- a sine qua non in its poverty
\nalleviation and unemployment\/underemployment reduction campaign.<\/p>\n
The government simply does not have enough money in the till
\nto finance all its ambitious economic programs.<\/p>\n
Furthermore, it is already paying out more in servicing its
\ndebts -- more than $4.8 billion this year alone -- than it is
\ntaking in new foreign aid. We are at that inevitable phase of
\nhaving a net outflow of foreign aid.<\/p>\n
The devastation in northern Sumatra has obviously compounded
\nthe economic challenges facing Susilo, who has not even had his
\n100 days in office yet. He has been handed the huge task of
\nrebuilding infrastructure, houses, offices, schools and markets,
\nand in the worst affected areas, virtually to rebuild entire
\ntownships.<\/p>\n
All this will require funding on a massive scale, some of
\nwhich is being made available by the international community.<\/p>\n
It remains unclear how much of the $5 billion global pledge
\nwould be allocated to Indonesia; considering that we were the
\nworst affected with over 110,000 dead, we would likely receive
\nthe lion's share of it.<\/p>\n
It also remains unclear how much of this fund would come as
\ngrants and how much as concessionary loans. However, it is almost
\ncertain that all assistance for emergency relief programs would
\nbe in grant form, while most assistance for physical
\nreconstruction would be given as loans.<\/p>\n
Indonesia thus finds itself in the same position as that of a
\nperson just recovered from a heart attack who has been invited to
\na Sunday buffet brunch. Should he take the buffet at the risk of
\novereating and causing a relapse, or should he order a la carte
\nand eat only what he really needs? or -- stick to his post-
\nrecovery diet?<\/p>\n
As hard as it may seem, Indonesia needs to say \"no\" if the aid
\noffer, no matter how tempting, unnecessarily increases rather
\nthan eases our financial burden.<\/p>\n
This does not mean declining all aid, which is not an option
\n-- we simply need to be selective: All grants can be accepted, as
\nwell as zero-interest loans with long-term repayment periods.
\nBeyond these, the government must sift through the concessionary
\nloans on offer, and take only those that are truly necessary and
\ndo not add too much burden to our finances.<\/p>\n
The debt moratorium proposed at the Paris Club meeting this
\nweek, if it materializes, should also be considered with caution.
\nWhile it may give the government some breathing space to deal
\nwith the disaster's aftermath, a moratorium simply delays
\nrepayment -- we still have to pay them back, but later rather
\nthan sooner.<\/p>\n
Just over 12 months ago, Indonesia was still receiving
\nintensive care from the IMF. Today, we have been released but we
\nare not fully recovered, and our economy remains vulnerable, even
\nwith increased stability in macroeconomic indicators.<\/p>\n
Reckless borrowing -- like the person who, despite his fragile
\nheart and other systemic complications, still opts for the all-
\nyou-can-eat and ends up back in ICU -- would send Indonesia
\nspiraling down into another impossible debt situation and leave
\nus with no choice but to call the financial paramedics again.<\/p>",
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"sponsor": "Okusi Associates",
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