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.