Boediono unsure of Paris Club full support

Berni K. Moestafa and Anastashya Emmanuelle, The Jakarta Post, Jakarta

Minister of Finance Boediono appeared unsure as to whether Indonesia had secured the full support of its creditors for the upcoming Paris Club meeting, raising doubts over the crucial rescheduling of foreign debt payment.

Boediono said on Friday there had been early signs of support for the rescheduling of parts of Indonesia's foreign debt payment.

"But they (the creditors) aren't concrete, that's why we're going to seek confirmation," he said, without elaborating.

Boediono refused to say which member or what issue might impede talks during its third Paris Club meeting next month.

Indonesia is betting on slashing Rp 36.77 trillion (US$3.6 billion) from the state budget this year, through a combination of debt rescheduling and new program loans.

Failure to defer payment of the foreign debt will put the state's shoestring budget into disarray, as it must scramble to cover an estimated budget deficit of Rp 42 trillion.

Boediono's emerging doubts over the upcoming Paris Club talks come as a surprise, as confidence levels have otherwise been high.

Last month, a quarterly review on Indonesia's economy by creditor nations under the Consultative Group on Indonesia (CGI) ended on an upbeat note.

The CGI groups together Indonesia's main creditors, who also form the membership of the Paris Club.

One major CGI creditor, the World Bank, said creditors were so far satisfied with Indonesia's economic progress.

"Macroeconomic stability is on a sounder footing," remarked the International Monetary Fund (IMF).

It said that reduction in fuel subsidy spending, and the then sound sale process of Bank Central Asia (BCA) had cemented confidence that the economic reform program was progressing.

The positive note from the IMF should have rest assured Boediono, given the fund's strong influence over the Paris Club.

But the ultimate test ahead of the club's meeting will lie with Indonesia's ability to secure the IMF's new lending deal by the end of March.

To activate the Paris Club rescheduling deal, Indonesia must own a working IMF reform program, as set out under a Letter of Intent (LoI).

For now, blocking the signing of a new LoI are what are known as prior actions, six of which have yet to be met, according to media reports.

Boediono said he was upbeat about meeting them on time.

But with time running short and a number of targets pending legislators' approval, the government has reason to worry.

Among the six prior actions requiring legislature approval is the amendment of the central bank law, and the conversion of government bond coupon rates. Progress on these have been slow.

Indonesia's total sovereign debt stands at some 90 percent of its gross domestic product, or $130 billion.

Of that amount, $70 billion is in foreign debt.