Government gearing up for London Club meeting

Government gearing up for London Club meeting

Dadan Wijaksana, The Jakarta Post, Jakarta

After securing a US$5.4 billion debt rescheduling facility
from the Paris Club of creditor nations last week, the government
is now gearing up to seek comparable treatment from the London
Club of private creditors.

The London Club talks will discuss the rescheduling of the
country's debt to overseas private lenders, which is due to
mature between April of this year and December 2003.

Minister of Finance Boediono confirmed the plan, saying
Indonesia would seek to reschedule some $340 million worth of
standby loans.

"What we're going to ask for is a rescheduling of our standby
loans to international syndicated banks," Boediono told reporters
on Monday, adding that there was no exact timetable as yet
pending further deliberation.

He said, however, that the debts to be rescheduled did not
include more than $300 million worth of Yankee bonds maturing
during the period.

A Yankee bond is a U.S. dollar-denominated bond sold by a
foreign company or country.

London Club debt rescheduling is a condition requested by the
Paris Club.

But forcing private creditors to share the burden of the
sovereign debt rescheduling would lead to a downgrading of
Indonesia's sovereign rating.

"Unfortunately, we'll most probably have to downgrade
Indonesia's sovereign rating to selective default because of the
comparability application on the debt from the private sector,"
Standard & Poor's director of sovereign ratings for the Asia
Pacific region, Takahira Ogawa, was quoted by Reuters as saying
on Monday.

A downgrade may raise borrowing costs for Indonesia if it
makes investors more wary of investing here.

But it may only be a temporary setback and the stigma of
"selective default" may have been diluted given several
countries' experiences in recent years.

S&P may quickly revise up an issuer when the new terms and
conditions are agreed. Pakistan was downgraded to selective
default after a 1999 restructuring of its debt but it was
subsequently upgraded as the revised terms and conditions were
seen as improving its capability to pay, Reuters said.

The Paris Club rescheduling facility is crucial to helping
hold the country's state budget deficit at a safe level.

The successful bid last week leaves the government to shoulder
a maximum of "only" $2.7 billion in its debt service obligations
for this year.

However, the International NGO Forum on Indonesian Development
(INFID) sees the scheme differently, claiming that it will not
contribute to a comprehensive, sustainable and long-lasting
solution to the country's US$131 billion public debt burden, the
equivalent to its annual gross domestic product.

INFID said in a statement that the deal secured by the
government focused solely on the country's cash flow problems and
was aimed only at covering the budget deficit.

The agreement would consequently not create any room for
maneuver as far as development and social spending was concerned.
According to INFID, a debt write-off scheme was therefore what
the country really needed at the moment.

INFID called upon all creditors of Indonesia to leave behind
the unfair mechanism of the Paris Club -- where creditors and
debtors could not meet on an equal footing.

Boediono, when asked to comment on a possible debt write-off,
said that that kind of treatment would be risky today as it would
need certain mechanisms that were acknowledged by the
international community.

"There are no such mechanisms at present. What's available for
us is debt rescheduling schemes, like the Paris Club deal.

"But if there were to be in the future ... then, of course, we
would attempt to seize the opportunity."