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)