Expert questions motivation to seek more loans from CGI

Expert questions motivation to seek more loans from CGI

Indonesia will meet the Consultative Group on Indonesia (CGI)
in Tokyo on Oct. 17-18, to negotiate a loan of about Rp 20
trillion. Some see the loan as unnecessary, believing Indonesia
can still meet the demands of the state budget without it. One of
them is economist Revrisond Baswir of Yogyakarta-based Gadjah
Mada University, also director of the Institute of Development
and Economic Analysis (IDEA). He shared his view with The Jakarta
Post recently.

Question: Why do you say Indonesia does not need the CGI loan?

Answer: We have always been given the argument that we need
loans, without which we cannot go on with our lives. But do we
really need it? Frankly speaking, financially, we don't need the
loan.

I can say this because I've made some calculations based on
the 2001 state budget. If we are not as conservative as the
government in making assumptions of both the oil price and the
rupiah's value, we do have the money we need to fund the budget.

The government, for example, has set the oil price in the
state budget at US$ 17-22 per barrel although the market price is
US$ 37 per barrel. For the rupiah's value the government set a
value of Rp 7,300 per US dollar when the market rate is Rp 8,700.

Suppose we set the oil price at US$ 25 per barrel and the
rupiah's value at Rp 8,000 per US dollar, we would then have
about Rp 29 trillion from oil exports (1,460 x US$25 x Rp 8,000).
The government's calculation in this case is only Rp 17 trillion.
There is a difference of Rp 12 trillion.

Secondly, I also found in the state budget a bizarre
allocation called "other routine expenses." We certainly do not
need such an entry, as all necessary expenses have been budgeted
in other items.

Therefore, if we removed this item from the budget, which is
Rp 9.3 trillion, then add it to the windfall profit we are
getting from the oil export of some Rp 12 trillion, we would get
Rp 21.3 trillion. This certainly can cover the loan we wish to
get from the CGI.

That's why I wonder what the government's motivation might be
in seeking the loan.

What do you think that might be?

The government wants the loan to pay down foreign debt. To do
so, we need foreign exchange of at least US$ 3 billion a year to
pay for the interest alone. If we pay it with our own export
earnings, our foreign exchange reserve will be reduced. In this
case, the loan would save the reserve.

If this should be the case, what are the consequences?

It implies that we actually live on debt. That also means that
we are burdening our next generations with debt. For whatever
reasons, (we are) piling up debts, which must be repaid some day.
In this case, we are just gambling our future away. It's not a
solution. It's only delaying problems.

We have been heavily burdened by huge debts. We have a total
foreign public and private debt of some US$ 140 billion or nearly
Rp 1,200 trillion, in which some US$ 75 billion or about Rp 600
trillion are public debt (that of government and state-owned
enterprises.)

Domestic debt, says the BLBI, has reached an amount of some Rp
630 trillion. It makes a total foreign and domestic public debt
of about Rp 1,230 trillion.

Things have become more complicated these days, as the
government tends to take unreasonable steps in dealing with
private sectors debt, through, for example, re-capitalization and
bailout.

It's like transferring private debt onto the public debt. Now
we cannot even pay back the installments of about US$ 2 billion a
year. We have been unable to do so for three consecutive years.

It's therefore quite obvious that we are unable to service our
debts. Why then look for more?

Suggested solutions?

We could try to save our exchange reserve, especially from the
import sector by, for example, applying high taxation for
luxurious imported goods.

We could also collect all the foreign exchange we have from
private savings belonging to Indonesians, especially the national
elite and speculators, to pay for the debt. Such a step has
succeeded in other countries such as Thailand and South Korea.
I'm quite sure that there are many speculators and other
Indonesians who hoard foreign exchange. Gold is also good for the
purpose because we can convert it into foreign exchange.

Is this possible under the present circumstances?

I admit that it would certainly be difficult for us to do so
at this time, especially because we are not only experiencing
economic crisis but also that of political, social, and most of
all with people's trust. That's why I strongly suggest that the
government try its best to propose a debt relief to the creditor
countries, (to campaign for) at least 30 percent reduction.

Several Asian countries including Laos, Vietnam, and Cambodia
have received such a reduction. About 20 other countries in
Africa also received the same thing. Given the amount of its
debt, Indonesia certainly deserves such a reduction although it
has yet to be categorized as a heavily indebted poor country.

We have a good argument in this case. That is, we have just
been freed from a corrupt regime and some 30 percent of the
Indonesian foreign debt, as also acknowledged by the World Bank,
went to corruptors. This is what is called odious debt. This
amount deserves to be reduced because people could not be
considered responsible for a debt that was taken by corruptors.

Indonesian NGOs, including IDEA, have for years struggled for
this relief. The response so far is very promising. France, for
example, said in April that should development in Indonesia be
already on the right track, it was ready to form an international
solidarity to cut off a part of the Indonesian debt.

The U.S., too, has stated its readiness to write off
Indonesian bilateral debt through what is called debt for
environmental swept mechanism. The debt is not big, only about
US$ 2 million, but it would certainly reduce the government's
task in repaying the debt.

Even in Japan, which has a regulation forbidding the
government to make such a debt reduction, the opposition parties
we lobbied have said they would try their best for such a
reduction.

Unfortunately, our government does not do the same thing,
making it difficult for us to explain to the creditor countries
why we ask for such a reduction. In fact, they (creditor
countries) will not give such a reduction unless the government
proposes an official request for the reduction.

Have you informed the government of the NGOs' campaign for
debt relief?

Yes, we have done it many times. The response is (always) they
(the government) wanted to meet us (NGOs).

This year, for example, Coordinating Minister of Economy Rizal
Ramli invited us to a government-NGOs consultation forum held in
Jakarta on Oct. 6, (which was) meant as a preparation for the CGI
meeting in Tokyo. Some 37 NGOs were invited, three from
Yogyakarta including IDEA, one from Bogor, the rest from Jakarta.

What concerned us most was that we were invited but were not
given enough time (to prepare for the meeting) and information
(about the meeting and the loan to be received). What was more
interesting was that, according to the schedule we received, the
dialog was only scheduled for an hour. What could we discuss in
an hour with 37 different NGOs attending the meeting? It's
ridiculous.

That's why we, the three NGOs in Yogyakarta, refused to attend
the forum. We're afraid that the forum is only held to seek
legitimacy because the CGI asked that it be held. (Sri Wahyuni)