Delaying loan payments to get RI back on track<\/p>\n
Herbert J. Liem, Capital Markets Observer, Jakarta\/NewYork, USA<\/p>\n
As Dorodjatun Kuntjoro-Jakti, the Coordinating Minister for
\nEconomic Affairs of Indonesia recently mentioned, the pay-back
\ntrack record of the country with the International Monetary Fund
\n(IMF) thus far is an unblemished one and he would prefer to leave
\nit that way for the future (if at all possible).<\/p>\n
Additionally, as a member of the IMF since its establishment
\nin 1953, Indonesia paid membership dues of more than US$3 billion
\nthus far. The unblemished pay-back track record is also with the
\nWorld Bank, the Consultative Group on Indonesia (CGI) and other
\ninternational lending institutions.<\/p>\n
Undoubtedly, the country should be proud, since only a handful
\nat best of developing member-countries can claim the same. In
\nbanking circles, Indonesia would be considered one of its best
\nclients.<\/p>\n
Today keeping this unblemished pay-back track record to
\ninfinity is an impossibility. If the country would not get one
\ncent more loan from now on, it is estimated, that it would take
\napproximately 600 (!) years for this country to pay off its
\noutstanding loans.<\/p>\n
Moreover, at the upcoming CGI meeting in Nusa Dua, Bali, the
\ngovernment is asking the donor countries for an additional loan
\nof about $3 billion, to close the gap of the heavy budget deficit
\nof 2003, which most likely will be approved. The outstanding
\nnational debt will grow even bigger. When will this finally end
\nand where are we heading?<\/p>\n
At one point in the future, the government will have to admit
\nto its creditors, that it would no longer be able to remit the
\npayments coming due. It just seem like a time bomb ready to
\nexplode with all horrendous economic consequences for literally
\neveryone in the world's fourth largest country.<\/p>\n
Who will take the blame and what difference will it make? The
\nsituation would certainly effect the world economy, as Indonesia,
\nwith its 220 million people, is also a full member of the World
\nTrade Organization (WTO) and the ASEAN Free Trade Agreement
\n(AFTA), among others.<\/p>\n
The easiest and fastest way-out would be, if all creditors
\nwould agree to forgive all Indonesian debts. This however, would
\nbe only a dream which will not come true.<\/p>\n
The other possibility is, to assume that the current policy of
\nthe government is the right one and just wait patiently for
\nsomething positive to happen. But whatever the government does,
\nforeign and domestic loans will not disappear by itself, both
\nprincipal and interest.<\/p>\n
Instead, they will grow larger (as the government year after
\nyear needs additional loans to finance its budget- deficit).
\nThis, in turn will one day force the government to regretfully
\nadmit to the world (the creditors), that its national budget is
\ncompletely out of control.<\/p>\n
By that time, Indonesia will have less or even no longer say
\nover their own affairs and are completely under the control of
\noutsiders, i.e. foreign and domestic creditors.<\/p>\n
This would be a situation, unthinkable at present, but a
\nlogical consequence of the current government policy of
\n\"borrowing from Peter to pay Paul\".<\/p>\n
However, the government might consider a third option to
\nsolving the matter; A five-year moratorium on all debts, foreign
\nand domestic.<\/p>\n
Any creditor would agree with the first two options as
\ndescribed before, including its consequences. As to the second
\noption, no person in its right mind would wish the disastrous
\nfallouts to happen. Given the three options, any creditor would
\nopt for the moratorium. However, the initiative ought to come
\nfrom the debtor (in this case the Indonesian government).<\/p>\n
The debtor must convince the creditor, that we are not talking
\nabout eliminating the principle of loans, but just of five year
\ninterest payments due or part thereof; but that in any way, any
\npayments due should be delayed for the duration of the
\nmoratorium.<\/p>\n
During that time the debtor would be able to fully concentrate
\non the reorganization of its own financial matters with utmost
\ndiligence, while increasing the national output and the per
\ncapita income of the people, strengthen its national economy,
\nincreasing the economic growth to previous levels, without having
\nto worry about paying back debts (i.e. interest).<\/p>\n
Any creditor would be agreeable to such a proposal, because he
\nsees a clear sign that the debtor is very serious in remitting
\nits debts and the economy would be a very strong one again after
\nthe agreed five years, hence also benefiting the creditors.<\/p>\n
Should the creditors not agree with the terms, the decision
\ncould be made unilaterally. Indonesia would be considered
\ndetermined and decisive, which in turn will increase trust in
\nIndonesia and accordingly bring back badly needed foreign
\ninvestments and tourism to the country.<\/p>\n
Since the moratorium pertains all foreign as well as domestic
\ndebts, the government ought to advice all creditors on time of
\ntheir intentions on the moratorium. And to stress to all of them
\nthe measures are taken for the good of the population.<\/p>\n
The government should also have a close look at rampant
\ncorruption here in Indonesia and act at once. Yet, virtually
\nnothing is done to eliminate this cruel crime wave.<\/p>\n
So since barely a handful of the biggest corruptors have
\nlanded in jail let's do it the other way; start to pick up all
\nsmall fishes and gradually go to the bigger and biggest ones
\nsystematically. On a remote, relatively island among the more
\nthan 10,000 islands here, build a large no-nonsense prison and a
\nlarge factory on it (without any air-conditioning).<\/p>\n
The products manufactured here should be export-oriented goods
\nonly and should be labor-intensive. Since the prisoner-factory
\nworker would only make Rp 2000 for an eight-hour day shift, their
\nproducts would undoubtedly be very cheap on the international
\nmarket.<\/p>\n
To deter any would-be corruptor, the prisoners should not be
\nallowed to receive any visits. The prison factory should be run
\nby a privately held firm, with net profits shared on an equal
\nbasis with the government, of which the share of the latter
\nshould solely benefit the poorest of the poor.<\/p>\n
No export taxes and any other taxes are to be charged to the
\ngoods produced.<\/p>\n
Corruptors, who voluntarily return the ill-gotten money before
\nthey are caught, will serve only a third of the prescribed
\nsentence for the crime.<\/p>\n
Any success with such measures, depends of course on the
\npolitical will of the government.<\/p>",
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