Government expects tough talks at Paris Club III

Berni K. Moestafa, The Jakarta Post, Jakarta

The government said on Friday it was expecting some tough negotiating at next month's third meeting with the Paris Club donor countries over Indonesia's request to reschedule Rp 27 trillion (about US$2.6 billion) in debt principle and interest payments.

Coordinating Minister for the Economy Dorodjatun Kuntjoro- Jakti said negotiating a deal with the Paris Club members next month would likely be a tough job.

"I have to say that the third Paris Club meeting will be the toughest one," he told reporters following a discussion on foreign loans with non-governmental organizations.

According to the minister, it may be difficult to get approval for Indonesia's bid to seek a delay in the payment of Rp 7 trillion in interest payments.

Some economists have warned against deferring interest payments, arguing that creditors reserved such facilities for heavily indebted poor countries only.

But with a huge foreign debt payment next year, seeking the rescheduling of both principal and interest is unavoidable to help maintain the state budget deficit at a manageable level of 2.5 percent of gross domestic product.

Dorodjatun said that last month's terrorist attacks on the United States eclipsed any hopes of the global economy improving in the near future.

"The Sept. 11 tragedy hit, and everything changed," he said.

Donor countries, scrambling for funds to avoid falling into recession, may pressure Indonesia to repay its debts on time. They may also slash allotments for new loans.

The Paris Club groups together Indonesia's major sovereign creditors for talks on the rescheduling of debt repayments.

Also next month is the meeting of the Consultative Group on Indonesia (CGI), which will convene in Jakarta to discuss new loans.

Dorodjatun said that the government was hoping soft loans and grants would form a large part of the loans to be pledged by the upcoming CGI meeting.

Indonesia has said it would be seeking around Rp 35.4 trillion in new loans from the meeting.

To win over donor countries, Indonesia will present to them its social oriented 2002 state budget.

"Starting next year, we want to carry out programs designed to bring about job creation, poverty reduction and the empowerment of small and medium enterprises" he explained.

This, he said, was reflected in the government's allocating 24 percent of its budget to education.

But with spending needs so high, Dorodjatun added, it was impossible at the present time for Indonesia to cut its reliance on overseas loans.

Dorodjatun said earlier that the next CGI meeting would focus talks on the country's efforts to combat rampant corruption, fostering good governance, and economic recovery.