Independent assessment on debt urgent for Indonesia<\/p>\n
By Juergen Kaiser<\/p>\n
SIEGBURG, Germany (JP): In the running up to this week's
\nmeeting of the Paris Club of official bilateral creditors, Vice
\nPresident Hanzah Haz had -- surprisingly for some -- stated that
\nIndonesia was \"in dire need of debt rescheduling and relief.\"
\nThis was an important and welcome act of realism, contrasting
\nsharply with the repeated claim of the International Monetary
\nFund, that Indonesia would neither need nor win form debt relief.<\/p>\n
This week's meeting will not bring any new arrangement for
\nIndonesia, as it will only re-implement the suspended agreement
\nof April 2000. The next new arrangement needs to be made in
\nApril 2002, however, when the present one will expire. What will
\nbe at stake for Indonesia there?<\/p>\n
A country may qualify for debt relief in the Paris Club on
\nthree premises: It needs to have an unsustainable debt burden;
\nit needs to be poor, and it is likely to lack creditworthiness in
\nthe future.<\/p>\n
Indonesia would qualify for any relief internationally
\navailable under the poverty criterion. Her per-capita income
\nhovers around US$600, which is well below the $895 threshold set
\nup for \"IDA-countries\", in reference to the World Bank-related
\nInternational Development Association dealing with the poorest
\ncountries.<\/p>\n
There is not much positive to be said about Indonesia's
\ncreditworthiness either. Ever since the outbreak of Asian crisis,
\nthe country has suffered from net outflows on private capital,
\nwhich normally is a standard indicator. Private rating agencies
\nhave categorized Indonesia clearly below investment grade.
\nDoes Indonesia then have an unsustainable debt burden? The Paris
\nClub itself does not have clear criteria for what
\n\"unsustainability\" means in figures.<\/p>\n
The multilateral initiative of the Highly Indebted Poor
\nCountries, however, classifies a country's debt burden as
\nunsustainable, if the present value of its external debt burden
\nis beyond 150 percent of annual export earnings or if it is
\nbeyond 250 percent of annual fiscal revenue. Both apply to
\nIndonesia and are likely to remain there in the next couple of
\nyears.<\/p>\n
Despite the proven need to receive not only some postponement
\nof debt obligations into the future (a rescheduling), but to have
\na partial write-off (a \"haircut\" like finance minister Boediono
\nmeant but did not say last Tuesday), creditors will prevent
\nIndonesia from receiving it. The instrument for doing so is the
\nwithholding of the formal \"IDA-only\"-status, which means that,
\nunlike other severely indebted low-income countries, Indonesia is
\nstill entitled to borrow from the nonconcessional International
\nBank for Reconstruction and Development, and not only from the
\nWorld Bank's soft loan soft loan window, IDA. This status is
\nunilaterally bestowed to a country by the Bank's board.<\/p>\n
For Indonesia this results in a trade-off between around $1
\nbilliion in hard IBRD-loans to which it would loose access on the
\none hand versus a possible relief on the basis of the so-called
\n\"Lyon Terms\", to which it could get access as a \"Severely
\nIndebted Low Income Country (SILIC). Lyon Terms imply as a first
\nstep the reduction of the debt service falling due to the
\nofficial bilateral creditors in the Paris Club by 80 percent.<\/p>\n
Moreover they do oblige the debtor government to seek an
\nequally favorable treatment from other bilateral creditors
\n(governments beyond the Paris Club, private banks, bondholders).
\nDebt service to official bilateral creditors, which could then be
\nsubject to an 80 percent haircut amounts to some $4.5 billion in
\n2002 alone. Private creditors -- which according to Paris Club
\nrules would then be called upon to provide comparable
\nconcessions, expect $14 billion in 2002 from Indonesia.
\nIndeed such a far-reaching solution seems hardly imaginable --
\nalthough it would not be more than equal treatment with other
\nindebted countries, which find themselves in the same category
\nregarding poverty and indebtedness. So, what could a solution
\nlook like?<\/p>\n
The mere fact that Indonesia needs not just rescheduling which
\nsimply shifts the current burden onto the shoulders of future
\ngenerations of Indonesians is beyond any doubt. The problem is
\nthat the existing mechanisms, which the creditors have set up,
\nleave Indonesia on the wrong side of the huge gap between those
\nhappy few which qualify for relief and the rest of the indebted
\nworld, from which it is withheld under a formal pretext.<\/p>\n
In this situation Indonesian and international non government
\norganizations have launched the proposal to start a consultative
\nprocess under the leadership of a neutral mediator. The mediation
\nprocess would start with an independent stock taking of
\nIndonesia's debt burden. This independent assessment might lead
\nto a quite different picture from the World Bank's recent
\nanalysis which have notoriously underestimated the medium-term
\nunsustainability of Indonesia's foreign debt, in order to provide
\nthe Bank's important shareholders with a pretext to deny
\nIndonesia debt relief. The assessment would cover all qualitative
\nas well as quantitative aspects of the debt.<\/p>\n
In a second step the mediator would then propose a solution
\nnot necessarily in terms of a reduction quota but certainly in
\nterms of a time horizon which would go beyond anything the Paris
\nClub actually has on offer.<\/p>\n
The writer is with the Jubilee Alliance Germany, which is part of
\nthe international movement campaigning for debt relief for a
\nnumber of countries.<\/p>",
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