Indonesia to meet Paris Club to rehash debt issues

JAKARTA (JP): The government plans to meet with the Paris Club of government creditors in September to negotiate another debt rescheduling, said the Coordinating Minister for Economy, Finance and Industry Ginandjar Kartasasmita.

Ginandjar said on Wednesday that the government was seeking to reschedule between US$2.6 billion and $3 billion because the country's economy might not fully recover from its crisis within the next two to three years.

"Within the next two to three years our economy may not likely recover fully to the precrisis growth rate. Therefore we still need some breathing space for stimulating economic activities," Ginandjar told reporters prior to a monthly Cabinet meeting.

Ginandjar explained that the Paris Club previously rescheduled some $4.2 billion in debt principals, originally due between August 1998 and end of March 2000, with maturities between 11 and 20 years.

"Without another package of rescheduling, we should start repaying our debt again on April 1, but we know that our economy has not recovered yet to support such a debt service," he said.

He explained that if creditor nations endorsed the debt rescheduling proposal, it would be an option for the new government.

"If the next government still insists on repaying the debt on schedule, they can do that. It would be an open option," Ginanjar said.

Indonesia is set to hold a presidential election in November.

Indonesia's sovereign debt is estimated at more than $70 billion after the Consultative Group on Indonesia (CGI) donor nations agreed last month to provide the country with some $5.9 billion in new loans to help finance the 1999/2000 budget deficit estimated at 5.8 percent of gross domestic product (GDP).

Several politicians urged the government to ask for another debt rescheduling from the Paris Club as the country would be overburdened with the huge cost of various crisis-remedy programs, particularly the bank restructuring and recapitalization program which was estimated to cost some Rp 550 trillion.

But some analysts warn that such a measure may cause the country's economic risk to increase, making it much costlier to raise money from the international market.

Others were afraid that the debt rescheduling measure might completely close the international financial market to Indonesia since the country had in the past gained the reputation of a "good boy" who always repaid its obligations on time.

The government also dropped a suggestion to ask for debt forgiveness on grounds that such a measure would send Indonesia into the ranks of most poor nations.

The government was criticized for a massive leakage in foreign loans, which, according to a recent internal World Bank memo, amounted to some 20 percent of the World Bank's loans to the country, most of which ended up in the pockets of government officials.

U.S. expert on Indonesia, Jeffrey Winters, said last month that Indonesia had to have a new clean government which was not linked to the past to allow the country to demand the World Bank also be responsible for the massive loss and inefficiency in the use of foreign loans.

He said that the World Bank's founding charter stipulated that it should also be responsible for the embezzlement of its loans.

"But the current government can't do that because they're also part of the corruption," Winters said. (rei/prb)