Govt continues to study moratorium conditions, details

Rendi A. Witular, The Jakarta Post, Jakarta

The government is still studying conditions and details of the latest debt moratorium offer from the Paris Club of creditor nations, before making its final decision on the offer.

"There is a need for further negotiation before we accept the offer. Officially, we have yet to decide our position," Vice President Jusuf Kalla told a press briefing on Thursday.

He added that the moratorium offer would help the government keep this year's budget deficit to below 1 percent of gross domestic product (GDP).

Indonesia is facing the likelihood of a budget deficit of about 1.3 percent of GDP this year, due mainly to the need to finance reconstruction of tsunami-devastated Nanggroe Aceh Darussalam and parts of North Sumatra.

Kalla said that if the government accepts the moratorium on beneficial terms and conditions, then the country would be able to allocate sufficient funds for Aceh reconstruction as there would be additional funds in the state budget.

"The moratorium is being given to ease the burden on our state budget for rebuilding Aceh. These additional funds -- resulting from the moratorium -- should be used in accordance with that purpose," he said.

The government said it would allocate some Rp 45 trillion (US$4.82 billion) for the reconstruction of Aceh over the next five years, with some 50 percent of funds going to infrastructure projects, 20 percent to health and education programs, and the remaining 30 percent for other purposes.

Following the three-month debt suspension worth US$350 million in the immediate wake of the tsunami, the Paris Club last week agreed to extend the moratorium until Dec. 31 -- worth $2.6 billion -- to help Indonesia rebuild Aceh. In total, Indonesia owes Paris Club nations about $48 billion.

The moratorium offer includes the suspension of payments of debt principal and interest for a certain period of time.

Earlier on Monday, State Minister of National Development Planning Sri Mulyani Indrawati said that the government would likely take up the offer as it would not be compelled to enter another program with the International Monetary Fund (IMF), or to apply "comparable treatment" towards private sector debts.

Indonesia has objected to linking the debt moratorium with having to undergo another program with the IMF, due in part to public opposition, with many believing that the IMF's previous economic recipes had failed to nurture the nation's economy and had in fact slowed its recovery. Indonesia's financial institutions virtually collapsed during the Asian financial crisis of the late 1990s.

Indonesia also rejected the so-called "comparable treatment" scheme, which would have meant that creditors would have had to suspend private sector debt repayments as well, which would have resulted in a downgrade of their credit portfolio's and caused a downgrade in Indonesia's overall credit rating, which actually improved last year.

To obtain the budgetary benefits from the debt moratorium, however, the government must first negotiate with several Paris Club members who are still reluctant to suspend the payment of their debts, or who have not yet set out any terms for the moratorium.