Indonesia must go beyond Paris Club to seek larger debt relief

To reach a rescheduling of Indonesia's foreign debt an independent arbitrator is needed, says Binny Buchori, who coordinates the International NGO Forum on Indonesian Development (INFID). She spoke to The Jakarta Post staff writer Riyadi Suparno.

Question: The Paris Club will convene in September. Is it possible for the government to bring the issue of debt reduction to the Paris Club?

Answer: Of course, as Indonesia's debt problem is as much the creditors' problem. Within the current mechanism, however, it's not worth pursuing through the Paris Club. The Club is the group of creditors that decides upon your ability to repay the debt. As a debtor, you don't have much maneuvering space.

In the Paris Club, the creditors only think from the creditors' point of view; they do not think about the obligation of an indebted country to protect its poor and vulnerable.

So, the government of Indonesia should seek a solution beyond the Paris Club. What we have been advocating is that there should be an international consultation, in which an independent arbitrator, respected by both creditors and debtors, could mediate talks to seek the most feasible solution for debt reduction so that it could reach a sustainable level.

Q: Is there any precedent for such an international consultation?

A: This is something that has to be exercised and implemented. We had something like that in the 1960s when Soeharto took power. In those years, what took place was actually an international consultation led by the International Monetary Fund (IMF), under the auspices of the Paris Club, and the terms that Indonesia received at that time went beyond the standard mechanism of the Paris Club.

Q: Do you think the creditors would be willing to sit in that consultation forum for Indonesia?

A: Because Indonesia is such an important country, with such a huge market, I think they would be willing ... Indonesia's huge debt burden would become a problem for the creditors, if, say, we refused to pay. I'm confident that they would be willing to sit and talk.

Q: Is Indonesia really eligible to seek debt reduction because Indonesia has never been classified as one of the poorest countries, at least by international financial institutions such as the World Bank?

A: The problem of a debt burden is not the problem of whether you are a poor or rich country. To INFID and many other NGOs, the problem of debt burden is the problem of the suffering of the poor, the marginalized and other vulnerable groups. So, saying that we have to pay everything and even ignore the possibility of debt relief is actually legitimizing the suffering of the poor.

All Indonesians, including the poor, have to bear the debt burden. Universities have been sacrificed, taxes have been increased, subsidies for fuel and other items have been cut. Those are all direct impacts of the debt burden.

I strongly believe that as the government, you have to think about the people and not think only about how to satisfy the creditors. The path is not easy, the road is winding, but there are ways for the government to protect the poor.

Q: Our huge debt burden is partly a result of "bad" borrowing and corruption. We have corrupted much of the money lent to us, and now we ask for a debt reduction. Is that fair on the creditors?

A: I would argue that the creditors know that they have been dealing with a very corrupt government for many, many years. Even as late as 1997, they knew exactly where the money had gone. And then, a year later, they admitted, through a leaked document, that at least 30 percent of their loans to Indonesia had been diverted and had not gone to their proper target. In that sense, the debt burden is the result of bad borrowing and bad lending, and that burden must be shared. So, let's share the responsibility.

I would also suggest that the Indonesian government does its homework first. The government has to show its seriousness in its efforts to eradicate corruption by prosecuting those (problematic) conglomerates and the cronies of former president Soeharto. And then it (the government) should prepare a comprehensive plan to eradicate poverty.

After that it could say, "Here we are, serious in cleaning our government, serious in tackling the problem of corruption, but we simply cannot do anything to tackle the problems of poverty because we have to keep repaying our debt. And therefore, we need to negotiate."

Q: Is the government really committed to seeking debt reduction?

A: No.

Q: So where else do you expect the initiative to come from?

A: Of course, we have to keep talking and maintain dialog with the new government about this issue. First we have to continuously convince it that we have an unsustainable debt burden.

Next, we have to continuously talk to our House of Representatives. We have met with (House Speaker) Akbar Tandjung several times. In our last discussion, we received signals that he shared the same concern.

Then, of course, we have to get involved in broad-based popular education.

And then, most of all, we have to talk to the creditors. In this case, we have developed a network with organizations like the Jubilee International Club in United Kingdom and Germany. These are organizations aiming to influence decision-making in the parliaments of the creditor countries.

Indeed, debt reduction needs the support of all concerned. And we hope we will eventually get the necessary support for the sake of all Indonesians.