Debt moratorium to push deficit below 1 percent of GDP

Urip Hudiono and Rendi A. Witular, The Jakarta Post, Jakarta

The government will be able to keep the 2005 budget deficit below 1 percent of gross domestic product if it accepts a debt moratorium offer from the Paris Club of creditor nations, a senior official says.

"We previously estimated that the deficit would be somewhere around 1.3 percent (of GDP)," the Ministry of Finance's director general for the state budget, Achmad Rochjadi, said on Wednesday.

"Now, with a debt moratorium offer spanning the full year, the deficit can be kept as low as 0.9 percent."

Minister of Finance Yusuf Anwar said earlier the government would propose to the House of Representatives a revision of the state budget setting the deficit at 1.07 percent of GDP, due to the government's recent decision to cut the fuel subsidy. The unrevised 2005 budget puts the deficit at 0.8 percent.

To obtain budgetary benefits from the debt moratorium, however, the government must negotiate with several Paris Club members who are still reluctant to suspend the payment of their debts' interest along with its principal, Achmad said.

"The moratorium offer from the Paris Club only applies to the debts' principal, as several of its members have expressed an unwillingness also to apply it to the interest. It is these countries that the government must lobby," he said, declining to identify the nations.

Following an immediate, three-month debt suspension worth $350 million in the wake of the tsunami, the Paris Club last week agreed to extend the moratorium until the end of this year -- which would be worth $2.6 billion -- to help Indonesia rebuild the tsunami-devastated Aceh province.

According to State Minister for National Development Planning Sri Mulyani Indrawati, the government will accept the offer if it does not apply terms such as having to enter another International Monetary Fund program and the "comparable treatment" of private sector debt, which would affect Indonesia's overall credit rating.

Achmad said the moratorium's effect on the deficit would depend on state revenue and expenditures in 2005, on the back of changes in social welfare projects due to the fuel subsidy cut, as well as the financing needs for the rebuilding of Aceh.

Though agreeing that the moratorium should primarily be used for Aceh's reconstruction, Achmad questioned whether it was necessary to allocate all of the money for the province.

"If the cost of reconstruction in Aceh proves to be less than this amount, then it would be better to save some of it for longer term budgetary objectives," he said.

Coordinating Minister for the Economy Aburizal Bakrie said the government was still engaged in bilateral talks with the Paris Club to prevent an interest on interest scheme being applied to the suspended debt payment during the moratorium.

"We have sent official letters to finance ministers of the Paris Club members," he said at the State Palace.