Govt urged to better manage foreign debt, request cut
The Jakarta Post, Jakarta
The lack of a central coordinating body to manage foreign debt had led to unclear and often ineffective policies in servicing international debt, which has long put the state budget under heavy pressure, economists and NGO activists said on Tuesday.
"At present, the debt is managed separately by the Ministry of Finance, Bank of Indonesia and the National Development Planning Agency (Bappenas)," explained Fadhil Hasan of the Institute for Development and Finance at a discussion on debt management.
Fadhil said that to effectively service the debt, the government should evaluate institutional aspects of debt management to make the coordination clear among agencies authorized to carry out the tasks.
Based on BI's report, as of Dec. 31, 2004, the government's foreign debt stood at US$82.2 billion.
Debt servicing has been a major headache for the government, which is already evident in this year's state budget as it is heavily burdened by the whopping cost of subsidizing fuel.
Under the revised 2005 state budget, the government set aside Rp 52 trillion, about 10 percent of the total expenditures of Rp 511 trillion, to service foreign debts -- both principal and interest.
While more focused and integrated efforts to manage the debt would be urgently required, the government should again request a debt cut, so it could allocate more for crucial development projects and people's welfare, Fadhil added.
An economist with the Econit advisory group, Hendri Saparini, claimed that such debt relief was not on the minds of the executive body, which she said did not consider foreign debt a barrier to economic growth.
"Even in the medium-term National Development Plan for 2004- 2009, I did not find a single chapter that dealt with the management of foreign debt, meaning that the current government had not been focusing on settling the problem," she said.
An NGO activist, Ivan A. Hadar echoed those sentiments, saying the government should learn from Argentina, which had asked for a restructuring of its $130 billion in foreign debt after its economy suffered a complete meltdown a couple of years ago.
"Even though Argentina's move put off creditors and investors due to possible implications on the investment climate, in reality the country recorded annual economic growth of 8 percent to 9 percent in the last two years," said the executive director of International NGO Forum on Indonesian Development.
Binny B. Buchori of the Perkumpulan Prakarsa said Nigeria was also an example.
On June 30, the African country was granted a 67 percent debt cut, valued at $15.5 billion by the Paris Club of creditor nations.
"Nigeria managed to get the relief, even though it is not categorized as one of the highly indebted poor countries (HIPCs) or included under the International Monetary Fund's monitoring program -- two of the preconditions to get such a cut," she said.
"What Nigeria did was it proposed to the Paris Club a program called National Economic Empowerment and Development Strategy to alleviate its poverty," she said.
Discussions about foreign debt relief have been ongoing since the economic crisis hit Indonesia in 1997, with some observers saying that debt relief might be granted by creditors if the country was listed as an HIPC and drew up a poverty-reduction strategy. (006)