Kwik, experts to discuss ways out of hugh debts

Dadan Wijaksana, The Jakarta Post, Jakarta

The National Development Planning Agency (Bappenas) is planning to hold a one-day meeting with about 20 independent financial experts on Monday to seek alternative solutions to the huge domestic debt burden of the government, according to its Chairman Kwik Kian Gie.

Kwik, who is also State Minister of National Development Planning, was quoted by Antara as saying on Friday that the huge debt burden was a very serious problem.

The government issued more than Rp 600 trillion (US$67 billion) worth of bonds in the late 1990s to bail out troubled banks and recapitalize them. Some Rp 430 trillion of the bonds were injected into the banks. The state budget is covering the interest on these bonds, which is the main cause of the huge deficit of around 2.5 percent of gross domestic product this year.

This huge debt could potentially create a fiscal disaster.

Kwik said that the experts would also seek ways of how to redeem the bonds from the banks before they were sold to private investors.

He added that the government should postpone its plans to sell the banks before the bonds were taken out or greatly reduced from them so that they would no longer become a burden on the state budget once the banks had been transferred to the new private owners.

Kwik, a former chief economics minister, has openly criticized various economic policies of the current economic ministers. He has also called on the government not to extend the International Monetary Fund's (IMF's) economic reform program here, supposedly to end in November 2002. But Minister of Finance Boediono said that the government had extended it for another year.

The IMF has demanded the government sell its stake in three banks this year. They are Bank Niaga, Bank Danamon and Lippo Bank.

Senior economic ministers are expected to hold a meeting on Sunday to determine whether to proceed with the planned sale of the government's 51 percent stake in Bank Niaga to strategic investors due to low bids.

In March, the government managed to sell a 51 percent stake in Bank Central Asia (BCA), the country's largest retail bank, to a consortium led by U.S. investment firm Farallon Capital, for Rp 5.3 trillion.

BCA holds some Rp 60 trillion worth of government bonds. For this year, the state budget is paying around Rp 5 trillion in interest to the bank.

Kwik has questioned the logic of the government selling BCA, as it must pay a huge amount in interest to the bank's new owner each year.

The sale of government shares in the above banks is part of conditions for the IMF to disburse its next loan tranche to the country.

The IMF is providing a $5 billion loan package for Indonesia.

Any failure to meet the conditions set by the IMF could cause a delay in the disbursement of the loan, which could affect investor sentiment on the economy.

The IMF has argued that the divestment of government shares in the banks would bring in credible international investors, igniting capital inflow and eventually reviving foreign confidence in the country's banking sector.