Analysts concerned by RI's debts
JAKARTA (JP): The Brussels-based International Crisis Group (ICG) is concerned about Indonesia's limited capacity to reduce its huge public debts (foreign and domestic) which have reached US$154 billion, which is equal to the country's gross domestic product.
Due to numerous political and legal obstacles, and because of a strongly-entrenched patronage system, the Indonesian government may remain unable or unwilling to take on wealthy or powerful vested interests which oppose reform measures, the ICG noted in its latest report on Indonesia.
"The problem of reducing Indonesia's public debt to more manageable levels is inseparable from the wider problems of fragmented politics, a malfunctioning legal system and a political culture dominated by rent-seeking and corruption.
The problem is not a shortage of policy options, but the government's inability or unwillingness to implement fully a policy agenda it has agreed with its external creditors," it pointed out.
The ICG report titled Bad debt: The politics of financial reform in Indonesia, a copy of which was obtained by The Jakarta Post on Thursday, puts the government's external debts at $84 billion (including those of state firms) and domestic debts at $70 billion. In addition, the private sector owes an estimated $110 billion.
The ICG, which runs advocacy offices in Washington, New York and Paris, is committed to strengthening the capacity of international communities to anticipate, understand and act to prevent and contain conflicts.
The private, multinational organization noted that some external creditors seemed unwilling to consider further rescheduling of Indonesia's debts upon learning that the government had shied away from reforms for short term political reasons.
"But if Indonesia's ability to repay its debts weakens for reasons beyond the government's control, lenders may have to choose between granting further relief (rescheduling or easier terms) and seeing the government default," it cautioned.
The government is scheduled to hold a new debt rescheduling meeting with the Paris Club sovereign creditors next month but these talks are contingent upon a new Indonesia-IMF agreement on reform measures that has been delayed since last December.
The current state budget allocates Rp 53.5 trillion for domestic debt servicing and Rp 23.1 trillion for foreign debt servicing based on an exchange rate of Rp 7,800 to the dollar.
But the rupiah's exchange rate has been above Rp 9,000 since January and even been exceeding the Rp 10,000 level since early last week.
The ICG asked lenders to be realistic about what they could expect from the government which did not have majority support in the legislature nor the political will to distance itself from vested interests.
Rapid asset recovery by the Indonesian Bank Restructuring Agency (IBRA), which holds about $55 billion in assets taken over from nationalized and closed banks, is one way of reducing government debts.
But the ICG argued that the absence of consensus between the government and legislature on acceptable prices and buyers of the assets, had often delayed asset sales and caused controversy that damaged Indonesia's image with investors.
It urged full transparency in asset sales and debt restructuring deals by IBRA and suggested independent reviews of all transactions above an agreed size and publication of the results of such reviews.
"This would slow down asset sales and debt restructuring, but delay is a price worth paying if the result is transactions that are more widely accepted by the public," the group added.
The ICG also recommended that the government considered formulating a coordinated strategy on asset sales that covers both IBRA and the privatization of state companies and which involves consultations with the legislature, external lenders and investors, civil society groups, regional administrations and affected communities.
This strategy should set realistic recovery rates and lay down procedures for sales that are consistently transparent in order to avoid objections to a sale.
"This process might be lengthy, complex and bogged down, but the record of failed or stalled asset sales is long enough to suggest the need for rethinking," it said. (vin)