Demand for deb cuts will raise new problems

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)