Government expects tough talks at Paris Club III

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.