Japan rules out debt haircut possibility

Japan rules out debt haircut possibility

By Fabiola Desy Unidjaja and Kornelius Purba

TOKYO (JP): Japanese Prime Minister Junichiro Koizumi told
visiting President Megawati Soekarnoputri here on Thursday that
Japan could under no circumstances accede to a request for debt
relief as this would run contrary to Japanese law.

Koizumi told the President that he fully understood
Indonesia's economic difficulties, and expressed his government's
readiness to reduce Indonesia's heavy debt burden through its
contribution as a member of the Paris Club of creditors nations,
State Secretary/Cabinet Secretary Bambang Kesowo disclosed after
the meeting.

"If possible, let's not talk about a debt haircut. Japanese
law does not permit any such debt relief mechanism," Bambang
quoted Koizumi as telling Megawati.

Bambang said that during the two leaders' talks the President
did not raise the debt relief issue.

Top Indonesian officials, including Vice President Hamzah Haz
and Coordinating Minister for the Economy Dorodjatun Kuntjoro-
Jakti, have openly voiced their preference for debt relief from
Indonesia's creditors because the country's debt of US$150
billion, including $70 billion in sovereign loans, is too onerous
a burden for the new government.

The Paris Club has agreed to reschedule debts worth $4.2
billion, including $2.4 billion from Japan. The Paris Club is
expected to further reschedule $5.8 billion of Indonesian debt
due to mature in March next year. Japan's share is about $2.7
billion.

During the meeting, Koizumi also asked about the future of
four Japanese megaprojects in Indonesia, although he did not
specifically mention their names.

Separately, Minister of State Enterprises Laksamana Sukardi
noted that even though Japan by law does not allow debt relief,
the debt restructuring agreed on constituted de facto relief.

"In Japan, there is a law which prohibits the extending of
debt relief. Only debt restructuring is permitted. But in
reality, restructuring also entails debt relief. It's just that
we cannot use the term as it is taboo here," Laksamana said at a
joint press conference with Coordinating Minister for the Economy
Dorodjatun Kuntjoro-Jakti and Minister of Foreign Affairs Hassan
Wirayuda.

Laksamana also disclosed that the government would find a
solution for the four problematic Japanese projects next month.
Teams from both Japan and Indonesia would meet in Jakarta next
Monday to finalize resolution mechanisms.

"The principle underlying these resolutions will be burden
sharing. We emphasize that there should be equal treatment as
between debt and equity conversion," Laksamana said.

Meanwhile, in his address at a dinner welcoming the President,
Koizumi pointed out that although both Japan and Indonesia were
facing severe economic hardship, his government was prepared to
continue helping Indonesia.

Megawati smiled broadly when Koizumi ended his prepared speech
with the Indonesian words: "Terimakasih banyak (Thank you very
much)". The President herself delivered an off-the-cuff speech.

Her husband Taufik Kiemas did not accompany her to the dinner
as Koizumi is a divorcee. Liberal Democratic Party (LDP)
Secretary-General Taku Yamasaki was seated to her right.

Knowing that most of his Indonesian guests were Muslim, the
host did not provide wine for the toast with water being used
instead. Megawati leaves for Jakarta on Sunday.