Donors likely to provide debt relief

The Jakarta Post, Jakarta

Indonesia moved closer to securing debt relief on Wednesday with Japan, the country's largest single donor, joining a group of nations supporting the idea.

According to a source, Japanese Prime Minister Junichiro Koizumi would announce Japan's willingness to provide debt relief for disaster-stricken countries -- including Indonesia -- at Thursday's summit on the Asian tsunami where he is scheduled to deliver a speech.

"Prime Minister Koizumi will deliver a five-point initiative in his speech to help the nations affected by the tsunami. And the most important point is Japan's readiness to provide a debt moratorium," the source told The Jakarta Post.

The move would be a major step for Japan in its foreign-loan policy as no country has been granted such a moratorium or rescheduling policy by the country before, the source added.

Indonesia is the largest recipient of Japanese loans. Data from Bank Indonesia shows that Japan's official development assistance (ODA) to Indonesia stood at US$22.08 billion, as of the first quarter of 2004, of the country's $82.11 billion in total outstanding foreign debt.

"The details of the conditions of the moratorium will be discussed bilaterally further by senior government officials," the source said when asked about the details.

The United States, Germany, France, Italy, Canada and the United Kingdom have indicated their willingness to discuss a debt moratorium with tsunami-stricken countries to help compensate for the massive funds needed to rebuild their respective areas.

The proposal will be discussed at a Jan. 12 meeting of the Paris Club, which groups 19 creditor nations that provide loans to Indonesia. Overall, Paris Club debts total $47.8 billion, with $3.15 billion in principal and $1.36 billion in interest maturing in 2005.

Last year, the Paris Club wrote off 80 percent of Iraq's $39 billion foreign debt and interest repayments.

Apart from the moratorium offer, Koizumi will also announce the dispatch of the country's largest-ever disaster relief contingent. The personnel will number up to 800.

Indonesia was the hardest hit country in the Asian region with more than 94,200 fatalities in Aceh and North Sumatra.

President Susilo Bambang Yudhoyono welcomed the idea and said any form of debt rescheduling would benefit the country.

Asked whether the relief would simply be in the form of debt rescheduling or a write-off, he replied that he was not sure, "but even a rescheduling will still be a good opportunity".

Susilo was hopeful that the issue would also be discussed at the upcoming G-8 meeting.

However, Australian Prime Minister John Howard told reporters in Canberra he was not sure that a debt rescheduling would be the best option to help those in need.

"There is no guarantee that if you do it, what is forgiven or what is the subject of a moratorium will end up going in aid," he said as reported by Reuters.

Indonesia has a debt of about A$1.4 billion ($1.1 billion) to Australia, also a member of the Paris Club of creditor nations.

Stronger words came from the international agency Oxfam advocation director James Ensore, who said all funds from donors for emergency relief and the rebuilding process should come in the form of grants, instead of loans, if the donors indeed intend to help the crisis-affected countries.

Oxfam International is a confederation of 12 independent agencies operating around the world. It estimated that the foreign debt burden of the countries affected by the tsunami reached about $300 billion, while the relief aid pledged stands at about $30 billion.