Govt told to impress investors after Paris Club

Dadan Wijaksana, The Jakarta Post, Jakarta

Indonesia's US$5.4 billion debt rescheduling deal with the Paris Club group of creditor nations has given the country fresh credibility, which economists say the government should follow up and capitalize on through further reforms steps.

Last week's debt deal was as good as Indonesia could expect from negotiations with its sovereign creditors, they said.

Hadi Soesastro, economist with the Center for Strategic and International Studies (CSIS), said the deal signaled Indonesia's reform programs were on track, propping up investor confidence.

But it was up to the government to maintain that mood, he said.

"This (the Paris Club deal) should not be wasted," Hadi told The Jakarta Post over the weekend.

Last Friday, Indonesia's sovereign creditors agreed to defer payments of some $5.4 billion worth of debts maturing between April 2002 and December 2003.

Rescheduling the debt is pivotal to the country's fiscal sustainability, as it will slash its debt burden to $2.7 billion at the maximum from $7.5 billion without a deal.

Danareksa Research Institute economist Raden Pardede hailed the Paris Club deal's terms and condition as "the maximum".

The deal, the third since 1998, covered for the first time the rescheduling of both principal and interest payments.

Creditors gave Indonesia a lenient rescheduling period of over 20 years on its soft loans for development programs, with the rest stretched out over a period of more than 18 years.

The past two Paris Club deals had repayment periods of up to 20 years.

Raden said investors would take into account the positive note, but all that would fade soon if the government failed to step up the reform effort.

"In order not to lose the momentum, we should proceed with our reform plans, especially in the legal sector, which has been somewhat slow," Raden said.

Developments regarding the repayment of some $10 billion in debts owed by politically well-connected former bankers to the state was an area investors were watching closely, he said.

The government would soon have its resolve tested in taking legal action against bad debtors, and reveal a side of the country's legal system, which contrary to its image, could protect creditors' interests.

Other tests, he said, were the prosecution of prominent politicians and businessmen over graft allegations.

Rescheduling public debts to foreign private lenders risks downgrading Indonesia's country-risk rating.

The lower the country's risk rating, the more expensive it will be for foreign investors to borrow money to invest here.

Following the Paris Club meeting, the government would also have to meet the London Club of private creditors for debt rescheduling talks.

Bank Indonesia said earlier it expected to reschedule around $300 million in U.S. dollar denominated bonds, known as Yankee bonds.

"Learning from experience, we do not have to worry about the London Club meeting," Raden assured.