Indonesia to seek moratorium on 'illegitimate' debts

JAKARTA (JP): Indonesia should seek a partial debt moratorium on some US$30 billion of "illegitimate" foreign debts accumulated during the 30-year rule of former president Soeharto, an American expert said on Thursday.

Jeffrey A. Winters, an associate professor at Northwestern University in Illinois, said Indonesia and its foreign creditors should shoulder an equal share of the debts.

He said international lenders like the World Bank, the Asia Development Bank and the Consultative Group on Indonesia should be held responsible for lending money they knew was being abused by a corrupt government.

"Indonesia has a strong legal position (to ask for a debt (moratorium)," Winters said on the sidelines of a seminar on foreign debts organized by the Aid Watch Commission.

He said an article of the World Bank law prohibited the institution from extending loans to corrupt parties.

According to Winters's investigation, around $10 billion, or 30 percent of the World Bank's loans to the country since 1965, had disappeared.

"Corruption and collusion in the government happened right before the World Bank's nose," Winters said.

Although the World Bank at first denied the findings, it later admitted that leakage had occurred, he said.

"Yes, and we knew," he said, quoting a statement by World Bank representative for Indonesia Mark Baird when confronted with the charges against the bank.

"But it's not enough to say we're sorry, where is the responsibility?" Winters continued.

He said it was unfair that the World Bank demanded its loans be paid back in full plus interest, while it knowingly channeled some money into the wrong hands.

Armed with the World Bank law, Indonesia could sue the bank in international court, he said, adding that this was a move the bank feared.

The consequences for the World Bank if it lost a suit filed by Indonesia would be unimaginable, he said.

According to him, Indonesia's past regime was not the only corrupt government the World Bank had loaned money to.

"If Indonesia wins this case, how many other countries in the world can also win and demand a debt moratorium?" he said.

In 1980, the sovereign debts of developing countries stood at $610 billion. This figure grew to $1.47 trillion by 1990 and to $2.55 trillion by 2000, he said.

Winters suggested Indonesia make use of this threat to force the World Bank and other foreign creditors to share some of the burden from the illegitimate debts.

In total, illegitimate debts from creditors reached some $30 billion during the 30 years under Soeharto, he said, without saying where he received this data.

He said Indonesia must ask for a debt moratorium or it would never free itself from what he called the "debt trap".

"Countries like Indonesia will never be able to repay their debts. New debt is given each year to maintain the myth that the system is working ... In fact, globally the debt crisis has been a rolling crisis since the 1970s and 1980s," he said in a report.

Winters said that at the urging of Jubilee 2000, an international non-governmental organization advocating debt reduction for poor countries, international creditors agreed to cut the debts of highly indebted poor countries (HIPC).

Some 43 countries have since been included on the HIPC list.

Winters said Indonesia should have been included on the list, but he suspected that lenders feared the country's huge debts.

Adding Indonesia, Pakistan and Nigeria to the list would swell the amount of HIPC debt haircuts threefold, he explained.

As of early 2001, he said, the Indonesian government's total foreign and domestic debt stood at about $134 billion.

In 1997, before the economic crisis struck the country, the ratio of total government debt to gross domestic product (GDP) stood at 23 percent.

By 2000, the ratio had swelled to 83 percent, mainly because the rupiah had lost much of its value against the US dollar after the crisis, he said.

Winters quoted the World Bank as saying in 2000 that Indonesia could lower this ratio to 67 percent by 2005 and to 46 percent by 2010, provided the economy continued to recover.

But within only one year of this statement, the ratio of total government debt to GDP had grown to 104 percent.

For the current fiscal year alone, he added, Indonesia must pay debts of Rp 120 trillion (about $10.75 billion), of which half was foreign.

This means that this year's spending on foreign debt servicing is six times larger than the spending on education, social and health care needs. "It is the poor that suffer most from this situation," he said.(bkm)