Indonesia's debt

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