Passing on debt to the next generation<\/p>\n
Bahtiar Arif, Center for Indonesian Reform, Jakarta<\/p>\n
The economic team led by the Coordinating Minister for the
\nEconomy has successfully convinced creditors grouped in the Paris
\nClub to reschedule Indonesian debts of US$5.5 billion. These
\ndebts will be rescheduled to more than 20 years. This means that
\nthe government will not begin repaying the debt until at least
\n2004, and the 2003 and 2004 budgets can be used to fund some
\ndevelopment programs.<\/p>\n
However, has the government prepared a comprehensive, feasible
\nfinancial projection for repaying its debts over the next 20
\nyears? There seems to be little concern about how the next
\ngeneration can afford to repay the previous generation's debt.<\/p>\n
The amount of foreign debt tends to increase. Debt
\nrescheduling only concerns the period of repayment, not reduction
\nof the amount to be paid. It transfers the obligation to pay the
\ndebt to the next generation. The government, meantime, will draw
\ndown new debts in order to finance its budget deficit. Without
\ngood management, the next generation will be burdened by a huge
\namount of debt.<\/p>\n
Debt relief is the only way to reduce the debt. But, the
\ngovernment has never proposed debt relief to its creditors,
\nalthough there have been some demonstrations calling for a cut in
\nthe nation's debt. The government said that Indonesia has no
\nbargaining power and was not categorized as a poor country, so it
\nwas impossible to obtain a debt haircut or debt swaps.<\/p>\n
Why didn't the government propose debt cancellation as its
\nopening bid at the Paris Club. There are some grounds for calling
\nfor debt cancellation. First, there is the ineffectiveness of the
\ndebt. The state's borrowings have not been totally invested, but
\nrather partially consumed. This phenomenon is known as
\n\"fungibility\". Not only did the government consume the debt by
\ncorrupting it, but creditors also absorbed it by imposing
\nprovisions linking aid to trade. This means that the creditors
\nrequired the government to buy equipment and\/or use consultants
\nfrom their countries.<\/p>\n
Second, the debt will be hard to repay if we look at the
\ncountry's recent financial and economic performance. A
\nresearcher, John Hanton, in 2000 measured the debt sustainability
\nof surveyed countries by using financial and economic data from
\nthe countrys' budgets, capital accounts and debts. By looking at
\nIndonesia's budget, capital account and debt for the year 1999,
\nonly 23 percent of its $150 billion debt will be repaid.
\nTherefore, 67 percent of the total debt should be written off.<\/p>\n
Third, one of the motives for giving financial assistance is
\nmoral. It is time to prove the creditor's commitment to nature,
\npoverty eradication, health, education, and other social, human
\nand environmental developments. If creditors are really committed
\nto helping, the debt should be swapped for development programs.<\/p>\n
But the deal is now a fait accompli. The economic team left
\nParis happy because it had successfully achieved its objectives.
\nYet the government still needs to explain how to repay the debt
\nby producing a debt repayment plan approved by the legislature.
\nThe plan should be in line with National Development Programs and
\nannual budgets.<\/p>\n
New foreign borrowings should be selective, and be scrutinized
\nand approved by the legislature. The debt service ratio, which is
\nnow around 35 percent, has to be reduced to between 10 percent
\nand 20 percent. Export performance must be improved by reviving
\nthe real sector, especially export oriented businesses. The
\ncapital account should be maintained in positive territory so as
\nto accumulate reserves and strengthen the rupiah.<\/p>\n
If these scenarios are successful accomplished, the present
\ngovernment will not burden the next generation. But if there is
\nno proper economic management, the next generation will become
\nthe indebted generation.<\/p>",
"url": "https:\/\/jawawa.id\/newsitem\/passing-on-debt-to-the-next-generation-1447893297",
"image": ""
},
"sponsor": "Okusi Associates",
"sponsor_url": "https:\/\/okusiassociates.com"
}