Megawati asks donors for 'breathing space'

Megawati asks donors for 'breathing space'

JAKARTA (JP): President Megawati Soekarnoputri appealed to
donor countries on Thursday to give Indonesia "elbowroom" and
"breathing space" in fulfilling its debt obligations.

"We will try our best to fulfill our commitments, however, we
would be grateful if our creditors would give us a little
elbowroom and a chance to breathe so that we can rebuild our
national life during this difficult transition period," she said
in her first state-of-the-nation address to commemorate
Indonesia's 56th year of independence.

Megawati said that, although agreements were basically made
for mutual benefit, it had to be admitted that many contracts and
commitments had been found difficult to fulfill, and that it was
understandable for revision of the commitments to be
contemplated.

"However, no matter the reasons ... a commitment is still a
commitment, a promise is still a promise, whether it be made
nationally or internationally," she said.

Indonesia is struggling under the weight of some US$140
billion in overseas debts, including public and private sector
debts.

Next month the Paris Club of creditor nations is expected to
reschedule about $2.8 billion of Indonesia's sovereign debt that
falls due this year.

Coordinating Minister for the Economy Dorodjatun Kuntjoro-
Jakti said recently that the government was also considering
asking the Paris Club to provide a further rescheduling facility,
particularly for debts maturing in 2002, to help ease pressure on
next year's state budget.

But the success of the debt rescheduling talks next month
depend on whether the government can reach a new economic reform
agreement with the International Monetary Fund (IMF), which
suspended late last year its $5 billion bailout facility for the
country amid signs that the previous administration was wavering
with the implementation of agreed reform programs.

The IMF has been criticized by some analysts for imposing
overly strict requirements on borrowing governments. Indonesia's
last Letter of Intent (LoI), for instance, was seen by many as
being too broad. The LoI consisted of 67 points, complete with
matrixes detailing scheduled execution deadlines, that went
beyond macroeconomics, which is the field traditionally
scrutinized by the IMF.

Experts said that the tough and detailed requirements created
difficulties for certain governments to translate within country-
specific social and political conditions.

An IMF high-level mission led by its Asia Pacific deputy
director Anoop Singh is expected to arrive in Jakarta this week
to discuss the progress in meeting new reform targets with the
new government before deciding on the release of a $400 million
tranche from the three-year $5 billion loan.

The government is expected to attempt some negotiations with
the IMF as several targets seem impossible to realize. The
government, for example, is targeted to raise around Rp 6.5
trillion in privatization proceeds and another Rp 27 trillion
from the sale of assets under the Indonesian Bank Restructuring
Agency (IBRA), to help finance the 2001 state budget deficit
capped at 3.7 percent of gross domestic product (GDP). The
government has been unable to secure any proceeds from the sale
of state enterprises this year, while the disposal of IBRA assets
has progressed slowly.

International donors, including the World Bank and the Asian
Development Bank, have also linked their lending to progress in
implementing reform programs such as the eradication of
corruption, a job which analysts say is impossible to achieve
quickly by any government, especially in Indonesia.

Separately, Dorodjatun said that it was critical that
Indonesia meet its obligations to creditors.

"At the moment we are in an unfavorable bargaining position,
so we have to meet our obligations in order to quickly regain
international confidence," he said on Friday.

Dorodjatun said that, although some of the terms demanded by
the creditors were difficult to achieve, he believed that they
would be eased as long as Indonesia negotiated in good faith.

Meanwhile, Minister of Finance Boediono said that Indonesia
could not simply ask for a debt haircut, as such a move would
risk isolation from international creditors.

"It would be better if there were a review to make the
contract commitments more flexible," he said, in response to
calls from certain parties suggesting that the government request
creditors cancel some of the country's massive $70 billion in
sovereign debt. (tnt)