New debt rescheduling<\/p>\n
Regardless as to how Indonesia's public sector debt burden is
\nmeasured, the government is unquestionably mired in a severe
\nliquidity crisis. Its total debt stocks outstanding as of this
\nyear were estimated by Bank Indonesia at more than US$141
\nbillion, including $70 billion in domestic debt.<\/p>\n
The ratio of total debts to the country's gross domestic
\nproduct (GDP) is already 110 percent, far exceeding the
\nsustainable level of 70 percent. Their ratio to total export is a
\nhorrendous 258 percent, way above the 200 percent level
\nconsidered manageable.<\/p>\n
The government's total debt servicing requirement this year
\nalone is calculated at Rp 132 trillion ($13.7 billion based on an
\nexchange rate of Rp 9,600, the average rate assumed for the
\nbudget). That is already 62 percent of its total annual operating
\nbudget, or more than 46 percent of its total tax receipts.<\/p>\n
Official foreign debt payments alone (interest and principal)
\nare projected at $10.9 billion next year and $9.4 billion in
\n2003. It is little wonder then, that the latest World Bank Debt
\nReporting System classifies Indonesia as a severely indebted
\ncountry.<\/p>\n
Set against these oppressive debt burdens, the government's
\nplan to negotiate another debt rescheduling package with the
\nParis Club of sovereign creditors, as disclosed by new chief
\neconomic minister Dorodjatun Kuntjoro-Jakti last week, is a wise
\nmove.<\/p>\n
Without a significant reduction of debt servicing and
\nprincipal payments, the 2002 state budget deficit will certainly
\nexplode to an unsustainable level, much higher than this year's
\ntarget of 3.7 percent of GDP.<\/p>\n
The problem is that foreign debt rescheduling is the only
\navenue available for the government to cope with its severe cash-
\nflow difficulties.<\/p>\n
Domestic debt rescheduling is completely out of the question
\nbecause the rupiah debts consist entirely of bonds issued to
\nrecapitalized banks. A mere intention to reschedule these bonds
\nwill kill the whole banking industry because more than 80 percent
\nof their capital is made up of the government bonds, while the
\nbulk of their revenue is still derived from the bond coupons.<\/p>\n
Asking for some foreign debt forgiveness, as often demanded by
\nnon-governmental organizations, is similarly devastating as it
\nresults in a default that will entirely deprive the government of
\nany access to the international financial market. As this
\ncondition would normally trigger a cross-default in the private
\nsector, the international financial market would consequently
\nclose its doors to the Indonesian economy.<\/p>\n
Lobbying the World Bank and the International Monetary Fund
\n(IMF) to classify Indonesia within the Heavily-Indebted Poor
\nCountries (HIPC) group, thereby entitling it to partial debt
\nrelief, is a remote possibility that requires more arduous
\nnegotiations as to whether Indonesia is eligible for the HIPC
\nscheme. Under the present critical condition, time is certainly
\nnot on the government's side.<\/p>\n
Judging from the ratios of total debt burdens to government
\nrevenues, exports and GDP, Indonesia should qualify for the HIPC
\ninitiative launched in 1996. But the eligibility criteria are
\nquite broad, including very low per capita income (below $500),
\ninaccessibility to commercial credits, implementation of a World
\nBank-endorsed poverty alleviation program and a good track record
\nof successful macroeconomic and structural adjustments.<\/p>\n
Hence, a third debt rescheduling package from the Paris Club,
\nfollowing the first deal signed in September 1998 ($4.2 billion)
\nand the second in April 2000 ($5.4 billion), is the most feasible
\nalternative.<\/p>\n
But since the Paris Club debt rescheduling commitments are
\nlinked to a reform agreement with the IMF, the government
\nurgently needs to complete its homework and conclude a new pact
\nwith the IMF. Even $2.8 billion of the second rescheduling
\npackage is now in limbo because of the suspension of a new
\nagreement with the IMF since last December.<\/p>\n
A new accord with the IMF should therefore be on top of the
\nnew economic team's working agenda, especially considering the
\nParis Club creditors will meet on Sept. 10.<\/p>\n
Without a new agreement with the IMF, it will be extremely
\ndifficult to draft the 2002 budget plan because the April 2000
\nrescheduling package signed with the Paris Club only covers debts
\nmaturing between April 2000 and March 2002.<\/p>",
"url": "https:\/\/jawawa.id\/newsitem\/new-debt-rescheduling-1447893297",
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"sponsor": "Okusi Associates",
"sponsor_url": "https:\/\/okusiassociates.com"
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