Debt a la carte, please

Debt a la carte, please

The world has extended its empathy to the victims in Nanggroe
Aceh Darussalam and North Sumatra of the devastating Dec. 26
disaster with unprecedented generosity, donating money and other
forms of assistance.

The global response has been overwhelming: More than $5
billion has been pledged by governments and individuals who were
touched by the human tragedy that affected not only Indonesia,
but also other Indian Ocean countries, including India, Sri
Lanka, the Maldives and Thailand. And this week, the elite Paris
Club of creditor countries will meet to consider debt relief
measures for Indonesia and Sri Lanka, the two countries most
affected by the disaster.

In a time of crisis like this, temptation is bound to be
strong for Indonesia to swallow everything that has been offered
by way of external assistance.

Why would we turn down generous assistance from across the
world when over 500,000 of our people are in such dire need of
basic necessities?

Indonesia, however, must move forward with the greatest
caution: It was just a year ago that the country exited the
International Monetary Fund (IMF) special program, under which we
had spent nearly six years because of our poor foreign debt
situation. The country must exercise prudence in its borrowing
policy -- especially in the face of fresh, well-meaning offers of
financial assistance -- lest we check back in to the IMF's
intensive care unit (ICU).

As challenging as may be the rehabilitation of the two
provinces and the lives of the people there, at the end of the
day, Indonesia still has to live within its means. Some of the
governmental assistance that has been pledged is in the form of
concessional loans, and the debt relief measures from the Paris
Club are likely to be in the form of moratoria. These forms of
assistance will either add to our debt burden, defer it a few
years down the road, or both.

The administration of President Susilo Bambang Yudhoyono had
already been engaged prior to the disaster in the uphill battle
to revive economic growth -- a sine qua non in its poverty
alleviation and unemployment/underemployment reduction campaign.

The government simply does not have enough money in the till
to finance all its ambitious economic programs.

Furthermore, it is already paying out more in servicing its
debts -- more than $4.8 billion this year alone -- than it is
taking in new foreign aid. We are at that inevitable phase of
having a net outflow of foreign aid.

The devastation in northern Sumatra has obviously compounded
the economic challenges facing Susilo, who has not even had his
100 days in office yet. He has been handed the huge task of
rebuilding infrastructure, houses, offices, schools and markets,
and in the worst affected areas, virtually to rebuild entire
townships.

All this will require funding on a massive scale, some of
which is being made available by the international community.

It remains unclear how much of the $5 billion global pledge
would be allocated to Indonesia; considering that we were the
worst affected with over 110,000 dead, we would likely receive
the lion's share of it.

It also remains unclear how much of this fund would come as
grants and how much as concessionary loans. However, it is almost
certain that all assistance for emergency relief programs would
be in grant form, while most assistance for physical
reconstruction would be given as loans.

Indonesia thus finds itself in the same position as that of a
person just recovered from a heart attack who has been invited to
a Sunday buffet brunch. Should he take the buffet at the risk of
overeating and causing a relapse, or should he order a la carte
and eat only what he really needs? or -- stick to his post-
recovery diet?

As hard as it may seem, Indonesia needs to say "no" if the aid
offer, no matter how tempting, unnecessarily increases rather
than eases our financial burden.

This does not mean declining all aid, which is not an option
-- we simply need to be selective: All grants can be accepted, as
well as zero-interest loans with long-term repayment periods.
Beyond these, the government must sift through the concessionary
loans on offer, and take only those that are truly necessary and
do not add too much burden to our finances.

The debt moratorium proposed at the Paris Club meeting this
week, if it materializes, should also be considered with caution.
While it may give the government some breathing space to deal
with the disaster's aftermath, a moratorium simply delays
repayment -- we still have to pay them back, but later rather
than sooner.

Just over 12 months ago, Indonesia was still receiving
intensive care from the IMF. Today, we have been released but we
are not fully recovered, and our economy remains vulnerable, even
with increased stability in macroeconomic indicators.

Reckless borrowing -- like the person who, despite his fragile
heart and other systemic complications, still opts for the all-
you-can-eat and ends up back in ICU -- would send Indonesia
spiraling down into another impossible debt situation and leave
us with no choice but to call the financial paramedics again.