New Cabinet needs to take hard look at odius debt<\/p>\n
Can the new Cabinet relieve the country of its debt trap?
\nPolitical economist Revrisond Baswir of the Yogyakarta-based
\nGadjah Mada University (UGM) shares his concerns.<\/p>\n
What are President Megawati Soekarnoputri's priorities?<\/p>\n
Her priority should be the management of the budget which is
\nrelated to many things that are right before us, such as the
\nParis 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
The new ministers like Dorodjatun Kuntjoro-jakti and Budiono
\nare expected to be able to resume the government's relations with
\nthe International Monetary Fund (IMF). But can they negotiate the
\nissue of debt reduction at the Paris Club and CGI? Dorodjatun is
\nrespected and accepted by the market but he should be critical
\ntowards foreign debt. His Ph.D thesis was in the political
\neconomic scope. Budiono, together with (economist) Mubyarto of
\nUGM initiated the concept of \"People's Economy.\"<\/p>\n
But they've both been in the government for quite a while,
\nespecially Budiono, so he'd be more conservative and would likely
\ngo only as far as requesting debt rescheduling. But they should
\ngo further given a green light (for debt relief) from Australia
\nand the World Bank.<\/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. So until the end of this year the rupiah must stay
\nbelow Rp 9,000. All such problems must be resolved before
\nSeptember.
\nWhat's your comment on signs from Australia and the World Bank
\nthat they are considering aamnesty of part of Indonesia's debts?<\/p>\n
Our debt should indeed be wiped out. The World Bank has all
\nthe information showing that we've fallen into a very heavy debt
\ntrap. So if the World Bank says it will conduct a study it
\nwouldn't be about how deep we're in debt; it would be more likely
\non the prospects of Megawati's Cabinet. If the government is
\nfriends with the IMF it will receive positive signals from them.
\nThey also want to see whether the government can hold out to 2004
\nand what the political map of the Cabinet is like. If they're
\nsatisfied with everything they should help us wipe out our debt.<\/p>\n
So the government must follow up on this green light?<\/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. The government also has a
\ndomestic debt of Rp 600 trillion. The burden of installments for
\nour due foreign debts this year is around US$14 billion.
\nMeanwhile next year the burden of debt installments to our export
\nrevenues will reach 54 percent; this means a continuous, annual
\nthreat to our foreign exchange 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. If Megawati's Cabinet is really market friendly,
\nthe pace of privatization may increase. This means contributions
\nfrom state firms (to state revenue) will no longer be from
\ndistribution of dividends but from the sale of private firms.
\nWhat about the relation to other policies?<\/p>\n
The success of privatizing state firms is related to other
\npolicies. A market friendly Cabinet will get a response of a
\nstronger rupiah which will eventually attract investors.<\/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;
\nIBRA is too messed up ... 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. Subsidies and the
\nfuel price are still debatable; is an increase really needed to
\ncover the deficit or is another review needed, given that some
\nthings are not yet clear on the actual production costs of
\nPertamina.<\/p>\n
So has the government delivered on its promise of a market
\nfriendly Cabinet?<\/p>\n
Yes; the issue is if this \"market friendly\" approach will have
\nto be paid dearly with IMF-suggested steps like increasing prices
\nof fuel and electricity? Hopefully not, in view of Megawati's
\nparty image of \"the little people.\" She should remember that.<\/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 ... The 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
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, we can't
\nexpect much .. While the government has to be market friendly,
\ncorruption and money politics is still widespread.<\/p>\n
Combating corruption is related to decentralization of the
\nfiscal balance. By reducing concentration of funds at the center,
\npossibility for abuse of state funds in Jakarta becomes smaller.<\/p>\n
Giving regions the authority to manage big funds can also lead
\nto corruption but at least the management of local
\nadministrations 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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