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