Demand for deb cuts will raise new problems
Demanding cuts in the repayment of foreign debts will affect Indonesia's reputation, in turn making it more difficult for the country to access new credit in the future, says Hadi Soesastro, executive director of the Centre for Strategic and International Studies (CSIS).
Question: Now that Indonesia has signed a new letter of intent with the International Monetary Fund (IMF), is it possible for the country to look for an agreement on the reduction of its official foreign debt repayments with the Paris Club of donors in their meeting next month?
Answer: No. It would be impossible for the country to look for a reduction in the repayment of either its debt principal or debt interest because the Paris Club has no framework for the reduction of debt repayments. If Indonesia wants to have its debt repayments reduced, a new forum of negotiation would be needed. But such a forum is usually designated just for the least developed countries.
Q: What would be the impact if Indonesia asked its creditors to reduce part of its debt obligations?
A: Once Indonesia looked for the reduction of debt repayments, its reputation would go down and, for a certain period of time, it would never be able to find new credit sources because no foreign creditors would be willing to lend it any money.
Q: Are there any other handicaps limiting Indonesia's chances of a debt reduction?
A: A creditor country like Japan (Indonesia's largest creditor) has no regulation that allows its government to waive foreign loans.
Q: But some non-governmental organizations (NGOs) have urged the government to ask for the waiving of part of its debts so that more money can be allocated to poverty alleviation. Your comment?
A: Some NGOs, not only domestic but also international ones, have always been demanding for the waiving of some foreign debt. But the fact that their demands have never been adopted indicates that the logic they use cannot be implemented in the world economy. Their logic could probably be implemented only in a completely different world of economics. Otherwise, we would have to be prepared to be regarded as one of the least developed countries. We should not do that if we want to be regarded as a respectable country. Once we owe money, we must be willing to fulfill the consequential obligations.
I do agree that debt repayment should not be burdened by the poor and, therefore, we must be able to restructure our own domestic economy. With the spirit of helping the poor, for example, the government should not import luxury cars just to serve VIP guests attending international conferences hosted by Indonesia.
So the NGOs are not realistic with their ideas and they are not familiar with the world they live in.
Q: Can Indonesian NGOs make effective appeals to international creditors if they cooperate with their international counterparts?
A: They can establish cooperation but their appeals will never be effective because creditors will say that the money that they have lent to Indonesia belongs to the societies to whom they must be accountable to.
Indonesian NGOs concerned with the fate of the poor will continue arguing for a reduction of foreign debt repayments because raising such an issue has become part of their agenda of activities. But their suggestions cannot be implemented because they are unrealistic and unacceptable.
Q: Then what is necessary for Indonesia to reduce its debt burden?
A: What's necessary is to look for the rescheduling of its debt repayments to ease the government's budget strain. Indonesia and Paris Club members have been involved in negotiations for the rescheduling of a certain amount of debts for a certain period of time.
It would be better for the government to look for the arrangement of Paris Club meetings not only for next month but also for the coming few years because the government's budget burdens will continue to be very heavy in the coming five years.
Q: How about looking for greater amounts of grants from creditors?
A: That will be good because grants will help the government finance its spending without having to seek new loans. To obtain greater amounts of grants, the government will have to intensify bilateral negotiations with individual creditors. Grants will also help reduce Indonesia's pressure in its balance of payments.
The government must gradually reduce new foreign debt in the coming years. (Rikza Abdullah)