Government drafting law on foreign debt

The Jakarta Post, Jakarta

To help avoid another financial crisis in the future, the government is finalizing a draft law on foreign debt, which will serve as a legal basis and provide a clearer mechanism on how to get and make use of foreign borrowings.

Minister of Finance Boediono expected the law to function not only as an early warning mechanism for the government, but also as prudential guidelines for creditors in providing loans.

"It's still being drafted. And I'm not sure when it would be presented before the House of Representatives for deliberation," Boediono told reporters after attending a plenary session with the House on the 2003 state budget Wednesday.

Indonesia has been seeking ways not to emulate the mistakes in the past when an unchecked government piled on foreign debt, leaving a huge burden for the present government to tackle. There has also been accusations that a large chunk of the debt has been misused by the previous regime under former president Soeharto.

And since the crisis struck in 1997-1998, which saw the local currency drastically lose its value to the dollar, efforts to repay those loans have been tougher than ever.

Servicing the annual debt interest alone has proved hard for the government. This year, close to Rp 30 trillion (US$3.37 billion) or around 1.7 percent of the gross domestic product has been allocated to service the debt.

To help ease the burden on the state budget, the government has had to seek a rescheduling facility from the creditor group of nations under the Paris Club.

The upcoming law is expected to help the government make its financial arrangements.

Details remain sketchy, but an official at the Office of the Coordinating Minister for Economy said the law was aimed at enabling the government to better manage foreign borrowings.

"The spirit in general is to make a clearer decision-making mechanism in obtaining foreign loans. That's important for the public as it is them who will be burdened (by it)," Mahendra Siregar told The Jakarta Post.

Although he admitted to have little knowledge of it as he was not part of the team drafting the bill, Mahendra believed that the law would only be applied to the government's foreign debts.

"My understanding is that foreign loans made by private businesses will not be the subject of the law.

"After all, unlike the government's debts that would leave the people to bear the brunt, the debt burden of the private sector should be settled by themselves. Not to mention that debts made by the private companies have their own market mechanisms," he added.