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.