Govt pledges to go for debt-for-nature scheme

JAKARTA (JP): The government has vowed to pursue a debt-for- nature-and-development swap with foreign creditors to ease pressure on the state budget from debt-servicing and to benefit the environment.

A meeting of ministers under the Coordinating Minister for People's Welfare on Wednesday decided to go on with the initiative, which was taken as a novel approach to acquire additional funds for the country's development, in particular environmental protection.

Environmental activists applauded the idea, which had been offered by the United States and Germany.

State Minister for Environment Nabiel Makarim said that there would be intensive discussions with the economic ministries before proceeding with negotiations with foreign creditors.

"The percentage of the debt-swap compared to the total amount of our bilateral debt with the creditor is small in nature, but it will certainly make a significant impact to spending on development.

"I consider this mechanism a way to bring environmental issues toward the mainstream of development," he told journalists after the coordination meeting hosted by his office.

The debt-swap is an international finance mechanism, which is aimed at decreasing the debtors' foreign debt by replacing it with the debtors' commitment to uphold social development and nature conservation programs.

Under a binding agreement, the creditor will cut the debtor's debt but the debtor has to provide their own funds of a similar amount with an agreed percentage of the debt-swap and use it for development-related activities.

In 2002 budget, he said, Indonesia had to expend some Rp 130 trillion (some US$13.6 billion), or about 44 percent of the state revenue, to repay the maturing sovereign debt. In comparison, the funding allocation for development programs was only Rp 47.1 trillion.

The U.S. offers a debt-swap mechanism for countries with tropical forests through the Tropical Forest Conservation Act and provides $200 million for all participants, where debtors each obtain a 40-percent cut from the agreed amount of debt under the swap.

Germany, he said, also offered a debt cut of DM 50 million (some $22.9 million) through the debt-for-sustainable-development mechanism with Indonesia, which was expected to be effective later this year or early next year at the latest.

Nabiel said that compensation from the debt-swap would first go to the Ministry of Forestry for reforestation projects, as most of the country's forests had already been damaged by illegal logging and forest fires. (bby)