INFID responds

INFID responds

In response to your editorial on Nov. 13, 2003, titled INFID's
sweeping criticisms, we would like to give the following
comments:
* Your editorial claims that we are criticizing without giving
alternatives, as stated in the paragraph: "If most of these
measures will be useless, as INFID claims, are there better,
alternative measures that are workable under the current
conditions?"

We do have an alternative. We strongly believe that a pro-poor
macroeconomic policy should be the guideline of Indonesia's
economic recovery. Such a policy would, among other things,
promote domestic investment instead of depending on foreign
investment, and would call for a total reform of the taxation
system, including the application of progressive tax, increasing
tax on imported goods, etc. The current white paper only suggests
reformation of tax law.

We also believe that, with the current debt burden, Indonesia
will never be able to escape the crisis. The accumulation of
Indonesia's debt stock is such that export earnings will be
immediately swallowed up in servicing the debt.
* You further state: "Is INFID so naive that it does not realize
that the heavy debt service burden was caused by the national
political consensus not to renew the IMF program?"

We agree with your accusation of us being naive. The rocketing
of Indonesia's external debt was caused by reckless lending that
started during the Soeharto regime. When the financial crisis
hit Indonesia and the rupiah depreciated, debt servicing became
unbelievably expensive.

We would like to point out here that external debt has always
been a problem, even before Indonesia entered the IMF program in
1997. The problem of Indonesia's debt burden became much worse
after the closure of 15 of Indonesia's banks, following the IMF
recipe, creating a huge domestic debt for Indonesia. And, as
broadcast by the media on Nov. 14, 2003, the IMF also admitted
that it had made mistakes in its program in Indonesia.

With the current external debt burden, Indonesia is obliged to
repay its debt, amounting to US$4 billion to $5 billion annually,
and, in addition to that, there is private debt, which costs
Indonesia about $7 billion to $9 billion annually. This amount is
about one-fourth to one-third of Indonesia's foreign reserves.
* INFID has never advocated that Indonesia become a Heavily
Indebted Poor Income Country (HIPIC). We said that Indonesia
should renegotiate its external debt under a different debt
arbitration mechanism.

Finally, as reported by the Global Development Finance Report,
Indonesia is categorized as a Severely Indebted Low-Income
Country.

BINNY BUCHORI
Executive Secretary INFID
Jakarta