New Cabinet needs to negotiate on odious debt<\/p>\n
The new Cabinet faces a tight schedule in the following weeks.
\nPolitical economist Revrisond Baswir of the Yogyakarta-based
\nGadjah Mada University shares his concerns.<\/p>\n
Question: What do you see as President Megawati
\nSoekarnoputri's priorities?<\/p>\n
Answer: Her priority should be the management of the budget
\nwhich is related to many things that are right before us, such as
\nthe Paris Club meeting (in September), the meeting of the
\nConsultative Group on Indonesia and also the government's budget
\nproposal for 2002. The Paris Club talks are related to the 2001
\nbudget; if we fail (to negotiate for debt rescheduling) at the
\nClub we could experience a default.<\/p>\n
We need here a grand design on how to manage such matters.
\nWhat is the fundamental solution of the government regarding our
\nmaturing debts? Are we going to ask for amnesty or is there
\nanother way? This needs to be clear.<\/p>\n
The threat of a deficit is there because of our these debts,
\nboth (to lenders) inside and outside the country. Domestic debts
\nreaching Rp 53 trillion must be paid this year to Bank Indonesia
\n(central bank). With BI's interest rate of some 17 percent the
\namount could reach Rp 60 trillion.<\/p>\n
Interest for overseas debts which must be paid this year alone
\nwill reach at least Rp 23 trillion ... The government also has
\nthe burden of the earlier rupiah value of Rp 9,600 to the dollar
\nthis year. This means until the end of this year the rupiah must
\nstay below Rp 9,000. All such problems are in front of us --
\nwhich must be resolved before September.
\nThe Australian government and the World Bank has signaled that it
\nwill consider amnesty of part of Indonesia's debts. Your comment?<\/p>\n
Our debt should indeed be wiped out. The World Bank has all
\nthe information showing that Indonesia has fallen into a very
\nheavy debt trap. So if the World Bank says it will conduct a
\nstudy it wouldn't be about how deep we're in debt; it would be
\nmore likely on the prospects of Megawati's Cabinet. If the
\ngovernment is friends with the International Monetary Fund it
\nwill receive positive signals from them. They also want to see
\nwhether the government can hold out to 2004 and what the
\npolitical map of the Cabinet is like. If they are satisfied with
\neverything they should be helping us wipe out our debt.<\/p>\n
So Megawati's government should immediately follow up on this
\ngreen light from the World Bank?<\/p>\n
Of course. The amount of foreign debt compared to our gross
\ndomestic product has reached over 100 percent; this is the
\nstrongest indication of our debt trap.<\/p>\n
At the same time the government has a domestic debt of Rp 600
\ntrillion. The burden of installments for our due foreign debts
\nthis year is around US$14 billion. Meanwhile next year the burden
\nof debt installments to our export revenues will reach 54
\npercent; this means a continuous, annual threat to our foreign
\nexchange reserves.<\/p>\n
So I see no choice for Indonesia other than to try to obtain
\ndebt amnesty. We should not be ashamed of being declared as
\nhaving defaulted on our debt payments, given the circumstances.
\nThe World Bank and Australia seem to be taking into account the
\ncorruption under the New Order regime.<\/p>\n
This is indeed the strongest reason (for appealing for
\namnesty). So our request for debt forgiveness would not only be
\nbecause of the above condition but because of our historic
\nreality that such huge debts have not reached the people because
\nof the corruption of the New Order elite. This is categorized as
\nodious debt.<\/p>\n
We should be grouped under the "heavily indebted poor
\ncountries" which get a reduction of 60 percent on debt
\nrepayments. Thirty-five countries are now in this category.<\/p>\n
With a targeted deficit of 3.7 percent from the gross domestic
\nproduct for this year, the government must seek income by getting
\nas much as possible from state firms, mainly through
\nprivatization. What are the prospects of privatization of state
\nfirms in the near future?<\/p>\n
If Megawati's Cabinet is really market friendly, there's a big
\npossibility that the pace of privatization will increase. This
\nmeans contributions from state firms (to state revenue) will no
\nlonger be from distribution of dividends but from the sale of
\nprivate firms.
\nWhat about the relation to other policies?<\/p>\n
The success of privatizing state firms is related to other
\npolicies. If the Cabinet is market friendly the response will be
\na stronger rupiah which will eventually attract investors to come
\nhere.<\/p>\n
Our sacrifice would be having to let go of the state firms
\nbecause foreign investors will clearly buy the firms whatever
\ntheir price in rupiah. Investors in strategic sectors will first
\nconduct due diligence studies before bargaining for the firms.
\nI'm sure the state firms will still be bought at the lowest price
\nlevels.<\/p>\n
What about the role of the Indonesian Bank Restructuring
\nAgency (IBRA)?<\/p>\n
Their contribution is expected but the main priority is
\nrestructuring the organization and revamping their work program.
\nThe impression is that IBRA is too messed up. An overhaul is
\nneeded although the target of its contribution to the state
\nbudget can still be determined. The government is also slated to
\nincrease fuel prices again this year given subsidy reduction.<\/p>\n
This is quite sensitive. The fuel prices will depend on the
\ndevelopment of the rupiah and interest rates. I think subsidies
\nand the fuel price are still debatable; is an increase really
\nneeded to cover the deficit or is another review needed, given
\nthat some things are not yet clear on the actual production costs
\nof Pertamina.<\/p>\n
What about the fiscal balance between Jakarta and the regions?<\/p>\n
Very early in her term Megawati has had to face this problem
\nin the form of the CPP Block contract (with PT Caltex Pacific
\nIndonesia) .... This is a good start. So (the government) should
\nnot harbor any wish to reduce regions' revenue, because regions
\nof course want more, not less. In general the Megawati government
\nshould also resolve the implementation of regional autonomy and
\npay attention to issues around Aceh, Papua (Irian Jaya) ... and
\nother potentially restive areas.<\/p>\n
The government must realize that the crucial issue raised by
\nresource-rich areas affects investors' interest. Pride and
\nidentity are important but the Acehnese would not raise their
\nvoice if they didn't know there were gas resources there;
\nlikewise people in gold-rich Papua and oil-rich Riau.<\/p>\n
Megawati's government which seems to be compromising and
\npragmatic has promised to please the market. This will lead to a
\nparadox; even the military may be used to face the regions, which
\nwill face the demands of the local public.<\/p>\n
Wiping out corruption is also important in securing investors'
\ntrust. What can this government do?<\/p>\n
Megawati's government is compromising here and there,
\naccommodating a number of political forces, so we can't expect
\nmuch regarding corruption. The paradox is while the government
\nhas to be market friendly, corruption and money politics
\ncontinues to be widespread.<\/p>\n
Combating corruption is related to decentralization of the
\nfiscal balance. By reducing the concentration of funds at the
\ncenter, the possibility for abuse of state funds at the center
\nbecomes smaller.<\/p>\n
It's true that giving regions the authority to manage big
\nfunds can also lead to corruption but at least the management of
\nlocal administrations is closer to their people, enabling better
\ncontrol. Strong monitoring by the public must be established.<\/p>\n
I'm worried about the influence of (Megawati's) Indonesian
\nDemocratic Party of Struggle (PDI Perjuangan) which gives too
\nmuch emphasis on the notion of unity, which may imply reducing
\nthe spirit of giving a chance to regional administrations. The
\nparty could very well sponsor efforts to amend the regional
\nautonomy law. (Asip A. Hasani)<\/p>",
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