Debt deal gives momentum to recovery

JAKARTA (JP): The government must take advantage of the positive "momentum" resulting from the rescheduling of US$5.8 billion in sovereign debts to speed up the country's economic recovery, according to experts.

University of Gadjahmada economist Sri Adiningsih said on Friday that the debt rescheduling deal should create a snowball effect in expediting the economic recovery.

"If the economic team works more seriously, the Paris Club deal should help accelerate the economic recovery as the debt rescheduling will certainly ease pressure on the state budget," she said.

Sri added that the Paris Club agreement should also help revive confidence in the economy for it was endorsed by international institutions, including the International Monetary Fund and the World Bank.

The Paris Club creditor nations grouping agreed on Thursday to reschedule $5.8 billion in Indonesia's debts.

Coordinating Minister for Economy, Finance and Industry Kwik Kian Gie said that the debt principals were rescheduled for 20 years.

Kwik said that $2.21 billion of the rescheduled debts would mature this year, $2.98 billion in 2001, and $717 million in the first quarter of 2002.

"The rescheduling package will greatly help us manage our debt servicing burdens and our state budget," he said.

"This is a clear signal of the confidence we have in the Indonesian economy," said Philipe de Fontaine Vive, vice resident of the Paris Club.

Sri, however, said that the debt rescheduling was basically a delay in the debt payment, which the government must pay once the debt matures.

"Our debt service ratio in the future will increase, particularly once the debt matures," she said.

"That's why we have to improve our economic performance, including boosting our exports," she added.

She also stated that the government must accelerate the bank and corporate debt restructuring programs in order to accelerate the economic recovery.

She added that progress in these two programs was particularly slow.

The IMF had delayed the disbursement of its $400 million loans to Indonesia because the government failed to implement part of its economic measures by the end of March deadline.

But the government managed to meet the new deadline of April 8 and 12, which was a key consideration made by the Paris Club in agreeing to Indonesia's sovereign debt restructuring proposal.

Bank Indonesia senior deputy governor Anwar Nasution said that the Paris Club deal should help the rupiah to gradually strengthen against the U.S. dollar.

"This is positive to the rupiah, although not immediately because it would lessen the demand for dollars," Anwar said.

"Our priority is now to accelerate the recovery, to increase production and the welfare of the people," he said. "It's important that our success with the Paris Club be followed by political stability."

Senior analyst at PT Trimegah Securities David Chang conceded that the Paris Club deal would be positive for the rupiah because of the lesser demand for dollars.

But he said that the impact on the stock market would be minimum because of the negative trend in the U.S. stock market.

Chang also agreed that the government must create political stability to further convince investors to enter the country.

He added that the government must also improve coordination between economic ministers so that they can implement the IMF economic reform programs effectively.

The rupiah ended the day almost unchanged and closed at Rp 7,625 per U.S. dollar on Friday, compared to Rp 7,610 on Thursday, while the Jakarta Composite Stock Index plunged to 556.78 at the close of the trading from 565.10 on the previous day.

Managing director of Bank Buana Indonesia Pardy Kendi said that the Paris Club rescheduling agreement, which was strictly conditional upon further support from the IMF, had yet to yield anything positive on the money and capital market.

The financial market was now turning to April 21 when the IMF team would visit Jakarta to review the country's economic reform programs.

Approval of the programs would prompt the IMF to disburse its $400 million, which is also a form of IMF endorsement. (rei/udi/bkm)