Most creditors to reschedule sovereign debt: Bambang

JAKARTA (JP): Most government creditors have agreed to reschedule the majority of the country's sovereign debt due this year, Minister of Finance Bambang Subianto said yesterday.

"Most of the government's debt which has to be repaid this year will be rolled over. That's the maximum we can get," he told House of Representatives commission VIII for the state budget and finance, and research and technology, at a hearing on the revised 1998/1999 state budget.

He declined, however, to mention the total debt due this year or how much of it would be rescheduled.

He said that the debt rescheduling could not be done unilaterally but had to be negotiated bilaterally with the creditors.

He conceded that it was a difficult choice because it could hurt Indonesia's credibility in the international community.

"We can't imagine the impact. That's why we resorted to this option only after serious preparations because we don't want to send the wrong signal to the market," he said.

Coordinating Minister for Finance, Trade and Industry Ginandjar Kartasasmita said last week that the government would reschedule part of its foreign debt to help raise funds to cover its immediate economic and fiscal needs in the wake of the country's year-long economic crisis.

He explained that the proposal to pay only the interest would be discussed and finalized with donor countries at the Consultative Group on Indonesia (CGI) meeting in Paris on July 29 and July 30.

The government would not discuss the proposal with multilateral organizations like the World Bank because they have strict rules which do not allow debt rescheduling, he said.

Ginandjar added, however, that Japan was reluctant to go along with the debt rescheduling proposal.

"Japan has its own credit policy. Japan prefers to give fresh money and we repay our debt principal and the interest," he said.

A government source said that the country's sovereign debt due for installment this fiscal year totaled $2.25 billion. This did not include the debt installments already made in the first quarter (April/June) of the current fiscal year.

Donor governments had committed to rescheduling $1.25 billion of the $2.25 billion, he added.

He explained that Japan rejected the debt rescheduling proposal because it was not allowed under Japanese law.

"If we make the move unilaterally, Japan will have to stop lending money both to the government and the private sector," he said, adding that negotiations with Japan were still continuing.

The official who insisted on anonymity said that the likely result was that the government would pay the debt in return for new loans from Japan.

Under the revised 1998/1999 state budget, debt installments this year were estimated at $4.2 billion, down from $4.9 billion in the January version of the budget because of the weakening of the yen against the U.S. dollar.

The government source also said that the Japanese loans might be part of the $6 billion in additional funding arranged by the IMF last week on top of the $43 billion bailout fund arranged last November.

The IMF said last week the additional bailout funds would be used to finance the gap in the country's huge budget deficit in the current fiscal year which is envisaged at 8.5 percent of gross domestic product.

The IMF last week also announced the disbursement of an additional $1 billion in balance of payments loan for Indonesia, thereby increasing its disbursement so far to $4.9 billion.

It pledged last week $1.3 billion to the $6 billion additional bailout funds, thereby raising its total commitment under the three-year bailout program to $11.3 billion.

Indonesia urgently needs the additional funds to cover the huge budget deficit projected from financing subsidies and social safety net programs to help the poor survive the crisis.

The IMF said that several donor institutions and countries, including the World Bank, the Asian Development Bank, China, Australia had promised to provide the additional funding. (rei)