Creditor nations approve RI's debt swap proposal

The Jakarta Post, Jakarta

The government claimed on Tuesday it had received agreement from eight creditor countries for debt swap schemes, which are expected to help ease the burden on the state budget in the repayment of sovereign debt.

Senior official at the State Ministry of National Development Planning Koensatwanto Inmpasihardjo said of the 15 creditor nations being offered debt swap proposals, eight had welcomed the scheme while the remainder had either completely rejected it or were still studying it.

Koensatwanto said the eight nations comprised Canada, Finland, France, Germany, Italy, New Zealand, Sweden and the UK, while rejections had come from Australia, Denmark, Japan and South Korea. The others were still undecided, pending further consideration.

The debts swap is a concept that the government has been developing, as part of efforts to take pressure off the state budget for debt repayments, especially foreign ones.

Although details are still sketchy, the concept is largely tied to the country's foreign debt restructuring program, such as that via the Paris Club mechanism.

The country's total public debt currently stands at around US$132 billion, or some 90 percent of the country's gross domestic product (GDP) for this year, estimated at around $165 billion.

Of that amount, $70 is owed to foreign lenders.

GDP measures total value of goods and services produced in a year.

Such a huge debt burden has created budgetary constraints, limiting the amount of funds allocated to development programs, while a huge amount must be allocated to service debt.

For example, the allocation for debt repayment this year stands close to Rp 120 trillion, which accounts for around 35 percent of entire state expenditure.

Elsewhere, Koensatwanto said the debt swap agreement with the eight countries covered various schemes such as swaps for nature conservation and for poverty eradication.

However, he fell short of explaining how much debt reduction the government would obtain from this, saying that agreements with each creditor nation still had to be worked out.

Reports have said that Germany has agreed to set aside 50 million deutschemarks for the debt swap scheme.

He also said that Japan had rejected the program on the grounds that such a scheme would be considered some sort of debt haircut, a very sensitive issue in the country at present.

As for Austria, it decided to oppose the swap as it did not have a legal basis on which to consider it.