Removing the confusion<\/p>\n
Chief economics minister Boediono was right to jump in and
\ncorrect a statement last week by State Minister for Development
\nPlanning Paskah Suzetta, about the government's \"plan\" to seek
\nforeign debt rescheduling in 2006.<\/p>\n
It was necessary for Boediono to act immediately to remove any
\nconfusion in the market caused by the statement, which if allowed
\nto stand, could have caused market jitters, raised the country's
\nsovereign risks, increased the costs of domestic and foreign
\nborrowing from the financial market and even set off another
\nspeculative attack on the rupiah.<\/p>\n
Suzetta, a politician from the Golkar Party, who recently
\nreplaced Sri Mulyani Indrawati in the post, obviously did not
\nknow what he was talking about early last week. Suzetta's
\nstatement should be seen more as an attempt to boost his
\npolitical popularity, without fully realizing the consequences of
\nhis words.<\/p>\n
Certainly, the interest payments and amortization of foreign
\ndebts in the next fiscal year will increase significantly to
\nabout US$8.8 billion, or almost 21 percent of total spending,
\nbecause the government will no longer receive a debt payment
\ndeferment from the Paris Club of sovereign creditors.<\/p>\n
However, the Paris Club has standard procedures for
\nrescheduling debt payments.<\/p>\n
The almost $3 billion in debt payment deferments the
\ngovernment earlier obtained from the Paris Club was a special
\ncase. It was granted not at the government's request, but at the
\ninitiative of several creditors after the devastating earthquake
\nand tsunami in Aceh and parts of North Sumatra. If the government
\nrequests a new debt rescheduling facility, it would have to
\nfollow the Paris Club's standard procedures.<\/p>\n
Boediono and finance minister Sri Mulyani were quite right in
\nasserting last Thursday that the government had no plan to seek
\nforeign debt rescheduling. First, the House of Representatives
\napproved the 2006 budget last October and it has now become law,
\nand any major changes to the budget would require prior approval
\nfrom the House.<\/p>\n
Most importantly, the government is no longer entitled to any
\ndebt rescheduling from the Paris Club after it ended its special
\narrangement with the International Monetary Fund in January,
\n2004. The decision to stop the special aid arrangement with the
\nIMF was based on a political consensus in mid-2003 at the House,
\nand both the government and the House fully realized the
\nconsequences of the decision.<\/p>\n
Nor is the government entitled to debt reduction or
\nrescheduling programs under the Heavily Indebted Poor Countries
\nscheme. This is because Indonesia is no longer tied to any IMF
\nspecial aid arrangement, and also because the government has yet
\nto complete a poverty reduction strategy paper, which would also
\nhave to be approved by the IMF and World Bank<\/p>\n
We fully agree with Suzetta's view that the burdens of
\ndomestic and foreign debts should be reduced, to allow more
\nresources to be used for public sector investment in
\ninfrastructure and poverty alleviation.<\/p>\n
Official foreign and domestic debts as of this year are still
\nas much as 52 percent of gross domestic product. Even though this
\nis much smaller than the almost 100 percent of GDP in 2000, most
\nanalysts consider the debt level still too high, seen from the
\nrisks of a currency crisis and the impact of a high debt ratio on
\nfuture tax burdens and lower investor expectations for net
\nprofits. Based on these aspects, a safe level for Indonesia's
\npublic sector debts is about 30 percent to 35 percent, compared
\nto 60 percent in European Union countries.<\/p>\n
It is worth remembering that the World Bank, the Asian
\nDevelopment and the IMF, to which more than half of Indonesia's
\nofficial debts are owed, never grant debt rescheduling. Hence,
\ndebt payment deferments can be obtained only from the Paris Club
\nof creditors.<\/p>\n
The dilemma, though, is that debt rescheduling from the Paris
\nClub, besides depending mainly on recommendations from the IMF
\nand World Bank, must follow strict procedures.<\/p>\n
Suzetta's misleading statement last week, which seemed to come
\nout of the blue, should serve as a valuable lesson for the new
\neconomics team on how to handle information to the public and who
\nshould make policy statements.<\/p>\n
The day-to-day perception in the market, notably in the
\nfinancial market, is formed mainly by what
\nbusinesspeople\/investors hear and read, not by economic
\nfundamentals whose indicators are published quarterly.<\/p>",
"url": "https:\/\/jawawa.id\/newsitem\/removing-the-confusion-1447893297",
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"sponsor": "Okusi Associates",
"sponsor_url": "https:\/\/okusiassociates.com"
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