Rescue from debt trap<\/p>\n
The ministerial meeting of the Non-Aligned Movement (NAM) on
\nthe debts of the least developed countries (LDC) in Jakarta last
\nweek might go down in the NAM history as a one-time affair or, at
\nthe most, could lead into long, complex negotiations between
\ndebtors and creditors. Yet, the Indonesian government should be
\ncommended for organizing the unilateral dialogs among the 31 NAM
\nmember countries.<\/p>\n
The recommendations from the meeting are sensible and down to
\nearth because they stipulate what both the creditors and debtors
\nshould do to settle the debt problems once and for all. We
\nnoticed the recommendations were very much influenced by the
\nthoughts of the Indonesian government who, though being one of
\nthe world's biggest sovereign debtors with total debts of over
\nUS$53 billion, has painstakingly built up a reputation as a good
\nborrower. It has never defaulted or fallen behind in servicing
\nits debts since 1967 when its debts were rescheduled under the
\nParis Club of Developed Country Donors.<\/p>\n
The call for an immediate, across-the-board reduction of 70
\npercent of the estimated $248 billion debts of the LDCs is seen
\nas crucial for rescuing the debtors from their debt trap. Without
\nimmediate, significant debt write off, those debtors would not be
\nable to implement sharp adjustments which are obviously
\nprerequisite for any debt relief. The problem is that those heavy
\ndebtors depend mainly on primary commodities whose international
\nmarket tends to be depressed.<\/p>\n
In fact, the possibility of debt forgiveness has often been
\ndiscussed by government donors, especially with regard to
\nofficial development assistance. The Group of Seven economic
\npowers invited the Paris Club to their summit meeting in Tokyo in
\nJuly, 1993, to discuss debt reliefs for the poorest, heavily
\nindebted countries. A debt relief of up to 80 percent was
\nexplored but the technical details of the process of the write
\noff have yet to be negotiated bilaterally.<\/p>\n
The NAM suggestion of a more coordinated debt solution effort
\nis quite appropriate because the debt problem is being handled by
\ndifferent fora of creditors. Coordination is especially essential
\nbecause the debts of the LDCs comprise borrowings from a variety
\nof sources. Therefore, any action on debt relief should be taken
\nsimultaneously on several fronts to bring about comprehensive and
\nlasting solutions.<\/p>\n
Although the NAM suggested an across-the-board debt relief of
\nup to 70 percent, it is also realistic enough to realize that
\nsolutions to the debt problems should be negotiated on a case-by-
\ncase basis. Indeed, though the LDC debtors have similar problems
\nwith regard to servicing and repaying their debts, the magnitude
\nof their problems and their capacity to take in adjustment
\nmeasures widely differ from each other.<\/p>\n
The capability to implement economic reform measures without
\ncausing economic and political instability is crucial because
\nsuch measures are always integrated into every debt-reduction
\nprogram. And such adjustments usually require big sacrifices on
\nthe part of both the people and government of debtor countries.
\nIn fact, Indonesia's success in servicing its foreign debts and
\nin maintaining a high international credit standing should be
\nattributed to its capability to implement sharp adjustments,
\nnotably deregulation measures, without causing economic and
\npolitical instability.<\/p>\n
One may question the advantages of too strong a government in
\nterms of democratic principles and the reliability of political
\nstability in the long-term. The fact is, however, that the
\nIndonesian government is so strong that it is capable of taking
\nunpopular reform measures even a few weeks before a general
\nelection-- something which is unthinkable in developed countries
\nwith a mature democratic system.<\/p>\n
The requirement of sharp economic adjustments may in fact be
\none of the formidable challenges for the debtor governments to
\nimplement. But the LDC debtors should realize that domestic
\neconomic reforms are a must in every effort to solve debt
\nproblems.<\/p>",
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