Debt extension may threaten Paris Club deal: Minister

Berni K. Moestafa, The Jakarta Post, Jakarta

Pressure is growing to scrap a debt extension plan for private debtors, as Minister of Finance Boediono said the plan might impede Indonesia's debt restructuring talks with the Paris Club of creditor nations.

Boediono said the debt repayment extension plan was part of the Letter of Intent (LoI) to the International Monetary Fund (IMF), that formed the basis for a deal with the Paris Club.

Asked whether the plan could block talks with the Paris Club, he said "I can say that, from the LoI point of view, yes (it might)," Boediono told reporters on Monday.

The Paris Club negotiation next April are aimed at rescheduling Indonesia's sovereign debt payments from a deficit state budget.

The budget targets around Rp 36.7 trillion (about US$3.6 billion) in both foreign debt rescheduling and new loan programs to partly offset a deficit estimated at Rp 42.1 trillion.

But that target may be at risk now with the debt extension plan for debtors of the Indonesian Bank Restructuring Agency (IBRA).

The plan delays by up to six years the payment of billions of U.S. dollars to the state, most of which fall due this year.

Adopting the plan would weaken Indonesia's ability to repay its foreign debts to the disadvantage of the Paris Club.

How the Paris Club creditors would react, however, depends on what the IMF thinks about the plan.

With the government still mulling over whether or not to adopt the plan, the IMF has been keeping a low profile over the issue.

But the direction it was leaning in was made clear when an IMF official said the key was legal certainty and not a longer payment period for debtors.

Most of the debtors have not started to make repayments in the three years since they signed an agreement to settle their debts.

As a result, the government initiated the debt extension plan, which has prompted sharp public criticism.

Last week an IMF team ended its review of Indonesia's reform progress with a request for a clearer strategy against IBRA's uncooperative debtors.

Among the reform targets set out under the current LoI is the devising of a strategy to force bad debtors to pay up.

The LoI called for a strategy where IBRA makes more use of its legal powers to confront uncooperative debtors. It said such a strategy should be in place by March.

An interministerial team is reviewing the plan and might be able to finalize its work sometime this month, according to officials.

IMF senior representative for Indonesia David C. Nellor said that the team was mulling over dropping the plan altogether.

He added that whatever the strategy would be, it should incorporate legal certainty to enhance the returns for IBRA.

Boediono further said that a new LoI should be in place before Indonesia went entered into negotiations with the Paris Club.

"The new LoI must be first signed and then approved by the (IMF's executive) board as it has been before," he said.

Coordinating Minister for the Economy Dorodjatun Kuntjoro- Jakti said last week that the upcoming talks with the IMF were directed at the signing of the new LoI by March.