Japan to support RI at Paris Club

The Jakarta Post, Jakarta

Japan, Indonesia's single largest bilateral creditor, will lend its support during debt rescheduling talks with the Paris Club next week -- but only if Jakarta pushes ahead with its reform program, a senior Japanese official said on Tuesday.

Indonesia hopes to secure the re-scheduling of some US$5.5 billion in principle and interest payments due to mature between April 2002 and December 2003 from the Paris Club meeting on April 11.

"With Indonesia's reform efforts as a prerequisite, Japan will support Indonesia's debt rescheduling," an unidentified official at Japan's finance ministry was quoted as saying by Reuters.

Coordinating Minister for the Economy Dorodjatun Kuntjoro- Jakti and Finance Minister Boediono left for Japan on Monday to seek support from Japan prior to the Paris Club meeting.

They met with Japan's Foreign Minister Yoriko Kawaguchi and Vice Finance Minister for International Affairs Haruhiko Kuroda, according to the official who attended the meeting.

He added that Indonesian officials knew that other creditors had taken tougher positions than Japan, and that efforts were needed to win them over.

"The Paris Club makes decisions by consensus, so we told them to continue in their efforts," the official said.

Concern of lax support has stemmed from Indonesia's slow reform in a number of areas, and fueled by critics against its lackluster efforts to crack down on alleged terrorist cells here.

This situation drove Boediono to visit several creditor nations last month, from where he returned with optimism.

Last week, a senior U.S. official said that Indonesia's reportedly slow anti-terror campaign would not be linked to the Paris Club, and that the U.S. government was supportive at the meeting.

Visiting U.S. representative at the International Monetary Fund (IMF) Randy Quarles said that he was encouraged by the progress of Indonesia's economic reforms, although more needed to be done.

Much of Indonesia's economic reform targets are contained under its Letter of Intent to the IMF.

So far, the fund has had a positive view of Indonesia's reform progress, eclipsing worries on several missed targets.

A spokesman at the Coordinating Ministry for the Economy, Mahendra Siregar, said that Dorodjatun and Boediono would likely return on Tuesday or Thursday.

Indonesia will meet for the third time since 1998 with its official creditors under the Paris Club to defer payment on debts from its chronic deficit state budget.

The government hopes to secure around Rp 36.77 trillion (about $US3.7 billion) from a combination of debt rescheduling and new program loans, to make this the single largest contributor in filling out a Rp 42.13 trillion deficit in the 2002 budget.

In the five years since the financial crisis struck, Indonesia is still struggling to stay afloat as debt payment remains the biggest drag on its economy.

This year, payment on foreign debt is estimated to hit Rp 72.93 trillion, while that on domestic debts is expected to reach Rp 63.45 trillion.

In total, spending on debts may reach Rp 136.38 trillion, or almost 40 percent of the country's 2002 budget.

Short on cash, the government sells off state assets and taps new loans to finance its budget deficit - moves that have earned it widespread criticism among nationalists.

This year, Indonesia will attempt to seek the rescheduling of interest payments that normally only highly indebted, poor countries are qualified for.

Elsewhere, Bank Indonesia director for international affairs Veronica Sulistyo said that Indonesia would seek to reschedule debts owed to private foreign lenders in line with demands from the Paris Club.

"Because of the equal treatment principle, Bank Indonesia has to propose a rescheduling for the $300 million worth of syndicated loans failing due dates" between April 2002-December 2003), she was quoted as saying by Reuters last week.

The proposal, however, means that Indonesia risks downgrading its country credit risk to selective default by Standard & Poor's.

At selective default, the cost of borrowing from foreign financial institutions becomes costlier, further blocking much- needed foreign investment into the country.

Mahendra said that it was too early to say whether Indonesia would propose rescheduling its debt to private lenders. "This will dependent on negotiation with the Paris Club," he said.

Government officials said earlier that Indonesia would negotiate with the Club not to reschedule its debts to private lenders to avoid its country risk from dropping.