Indonesia's debt

Regarding Hadi Soesastro's interview on the Indonesian debt situation (The Jakarta Post, Aug. 30, 2001: Demand for debt cuts will raise new problems), I would like to make a few comments.

First, it is not correct that the Paris Club does not provide partial debt cancellation to countries that are as indebted and in the same income category as Indonesia. All Indonesia is lacking for a partial write-off is the formal qualification as an IDA-only country -- and of course the political will of her creditors to grant that status and the subsequent write-off.

Second, the point that a partial write-off would jeopardize Indonesia's reputation as a debtor (and thus her access to capital markets) does not conform with either historical experience or logic. After having received a substantial write- off in 1970, Indonesia immediately started a new debt cycle, and today the World Bank assumes extensive new borrowing by countries which have received debt relief under the Heavily Indebted Poor Countries' Initiative.

As creditors base their decisions first of all on repayment perspectives in the future, there is good reason to assume that a clearing up of the backlog of unproductive and unpayable past debt, actually improves access to capital markets. Finally Japan has established, like other major creditor nations, a scheme for the internal refinancing of write-offs. Therefore the formal/legal situation for Indonesia's largest bilateral creditor is different nowadays from what it used to be earlier this year.

However, Mr. Soesastro is, of course, right in pointing out that existing debt relief schemes may turn out to be inadequate for Indonesia, and that a new mechanism should be sought. Ms. Buchori has broadly outlined how this might be developed.

JURGEN KAISER

Coordinator

Jubilee Alliance Germany

J=FCrgen KaiseJubilee Alliance Germany