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)