Economists see govt back down on debt extension plan

Economists see govt back down on debt extension plan

Berni K. Moestafa, The Jakarta Post, Jakarta

The government appears to be backing down on a controversial
plan to extend the repayment period for large debtors, opting
instead to stick with the original debt deals with some
revisions, said economists on Wednesday.

Economist Sri Adiningsih of Gadjah Mada University said that
chances were slim for the government to push ahead with the
initial debt payment extension plan.

Sri took her clues from a meeting with Vice President Hamzah
Haz. "Hamzah talked about taking the middle path in solving the
issue," Sri told The Jakarta Post.

The Vice President invited several economists on Wednesday to
seek inputs on what he called a stimulus package for the economy.

Attending the meeting were also Raden Pardede of the Danareksa
Research Institute, M. Ichsan of the University of Indonesia,
Umar Juoro of the Center for Information and Development Studies
(Cides), Didiek J. Rachbini of the Institute for Development of
Economics & Finance (Indef) and Zulkifli, Antara reported.

According to Sri, Hamzah had joined the discussion over the
debt plan upon President Megawati Soekarnoputri's request.

The plan has drawn controversy because of the risk of allowing
former bankers turned debtors, to skip the repayment of billions
of U.S. dollars to the state.

The debtors lost their banks to the government, after billions
of U.S. dollars were spent to bail the banks out from the
economic crisis in the late 1990s.

A state audit later revealed that most bankers had likely
misused the bail-out funds. They agreed to settle their debts but
in return demanded there would be no prosecution.

In 1998, the first batch of the former bankers signed a debt
agreement with the Indonesian Bank Restructuring Agency (IBRA).

The agreement expires this year, however, within the last
three and a half years most debtors have not even begun to make
repayments. This had prompted IBRA to propose the debt extension
plan.

State Minister for National Development Planning Kwik Kian
Gie, however, questioned the plan's viability as there was no
guarantee debtors would start paying after the extension.

Kwik urged the government take legal action against
uncooperative debtors.

But Hamzah realized the rift among ministers, and feared that
pushing ahead with the debt plan would put at risk the unity of
Megawati's Cabinet, Sri went on saying.

"Hamzah is taking a middle path between what IBRA and Kwik are
proposing," she said.

Economist Umar said the middle ground for the debt plan could
see the government simply revise the current debt deals.

"There might be payment extensions for certain debtors," he
explained.

He saw no reason to offer debtors up to 10 years, as they owed
the government liquidity emergency loans that were from the onset
short term debts.

Efforts to recoup the lost state funds from the debtors were
also part of Hamzah's stimulus package, he added.

Sri described the package as a policy guideline that would set
a clear direction for the government's reform policies.

Calling it a domestic Letter of Intent (LoI), she said the
stimulus package aimed at bringing together all economic policies
under one clear direction.

"This is long overdue, the government has been criticized for
making ad-hoc, overlapping and ineffective decisions," she said.

Sri said the government had so far been relying solely on the
reform targets outlined under the LoI with the International
Monetary Fund (IMF).

It was not immediately clear how the local LoI would coexist
with that of the IMF. Sri said she had not seen details of the
plan but added that it should complement the IMF LoI.

Umar said Hamzah's stimulus package should not be seen as
providing fiscal or monetary stimulus to the economy given the
current budget constraints.

According to him, the package offers a set of policies like
the restructuring of debts of small and midsize enterprises.