Debt accord offers little help: Experts

Debt accord offers little help: Experts

JAKARTA (JP): Economists have said the government's agreement
with the Paris Club creditor nations to reschedule US$4.2 billion
of the country's sovereign debt will improve the balance of
payments, but the impact on the overall economy will be small.

They said that the country's political instability and high
interest rate environment were still major stumbling blocks to
recovery.

"If you want to see it from the positive side, (debt
rescheduling) there's relief to the state budget and an
improvement in the balance of payments situation. But the major
concern is that there will still be no economic activities next
year as a result of high interest rates," said Martin Panggabean,
an economist at PT Lippo Securities.

Coordinating Minister for Economy, Finance and Industry
Ginandjar Kartasasmita announced on Wednesday that the country's
major international creditors agreed that all government
bilateral debts falling due between Aug. 6, 1998 and March 31,
2000 would be rolled over to between 11 and 20 years hence.

The deal reached in Paris at the end of the two-day marathon
meeting will allow the government to postpone any principal
repayments of the rescheduled debt during a 20-month period
ending on Mar. 31, 2000, enabling the country's resources to be
used to finance reform programs and help the poor, who number
nearly 100 million, to survive the worst crisis in three decades.

The rupiah remained stable at Rp 11,075 to the U.S. dollar on
Wednesday and slightly strengthened to Rp 10,975 on Thursday.

Martin said that the market was not surprised by the deal as
both the country and its international creditors had no choice
but to reschedule sovereign debts for obvious economic reasons.

Indonesia's stock of external debt at the end of the first
quarter of this year was placed in excess of US$130 billion,
comprising of $54 billion in government debt and $80 billion in
private sector debt, which many analysts said was equivalent to
more than 200 percent of exports, the threshold that is usually
believed to signal a serious debt problem.

"If they refused to give the (rescheduling) deal to Indonesia,
they would also have to do the same to Russia," Martin added,
pointing out that such treatment of the latter crisis-hit economy
would have a devastating impact on the world economy.

Senior banker I Nyoman Moena said that the debt rescheduling
deal would not lead to an economic recovery in the near future.

"Don't expect a significant impact on the overall economy
because the interest rates are still high and the political
situation is still very disturbing," he said.

The year-long economic crisis, which has seen the rupiah fall
more than 80 percent in value from its pre-crisis level, is
expected to batter almost all sectors of the economy. The economy
has been forecast to contract by at least 15 percent this year
and to remain stagnant next year.

Some optimists predict that the economy will start growing by
between zero and 2 percent by 2000 and may take another five
years before resuming pre-crisis growth rates.

Nyoman agreed that the rescheduling deal would provide the
government with greater resources with which to finance painful
economic reform programs and provide cheap rice and other basic
essentials to poor families.

"But this can only be of benefit to us if the government
controls its spending. We must stop wasteful habits," he said.

President B.J. Habibie's administration is currently under
pressure to eradicate rampant corruption in the country, a move
seen as the key to bringing about an economic recovery.

The World Bank announced on Thursday that it's continued
financial support of the government's social safety net program
was contingent on a genuine and successful campaign to stamp out
malfeasance. (rei)