Rescue from debt trap
Rescue from debt trap
The ministerial meeting of the Non-Aligned Movement (NAM) on
the debts of the least developed countries (LDC) in Jakarta last
week might go down in the NAM history as a one-time affair or, at
the most, could lead into long, complex negotiations between
debtors and creditors. Yet, the Indonesian government should be
commended for organizing the unilateral dialogs among the 31 NAM
member countries.
The recommendations from the meeting are sensible and down to
earth because they stipulate what both the creditors and debtors
should do to settle the debt problems once and for all. We
noticed the recommendations were very much influenced by the
thoughts of the Indonesian government who, though being one of
the world's biggest sovereign debtors with total debts of over
US$53 billion, has painstakingly built up a reputation as a good
borrower. It has never defaulted or fallen behind in servicing
its debts since 1967 when its debts were rescheduled under the
Paris Club of Developed Country Donors.
The call for an immediate, across-the-board reduction of 70
percent of the estimated $248 billion debts of the LDCs is seen
as crucial for rescuing the debtors from their debt trap. Without
immediate, significant debt write off, those debtors would not be
able to implement sharp adjustments which are obviously
prerequisite for any debt relief. The problem is that those heavy
debtors depend mainly on primary commodities whose international
market tends to be depressed.
In fact, the possibility of debt forgiveness has often been
discussed by government donors, especially with regard to
official development assistance. The Group of Seven economic
powers invited the Paris Club to their summit meeting in Tokyo in
July, 1993, to discuss debt reliefs for the poorest, heavily
indebted countries. A debt relief of up to 80 percent was
explored but the technical details of the process of the write
off have yet to be negotiated bilaterally.
The NAM suggestion of a more coordinated debt solution effort
is quite appropriate because the debt problem is being handled by
different fora of creditors. Coordination is especially essential
because the debts of the LDCs comprise borrowings from a variety
of sources. Therefore, any action on debt relief should be taken
simultaneously on several fronts to bring about comprehensive and
lasting solutions.
Although the NAM suggested an across-the-board debt relief of
up to 70 percent, it is also realistic enough to realize that
solutions to the debt problems should be negotiated on a case-by-
case basis. Indeed, though the LDC debtors have similar problems
with regard to servicing and repaying their debts, the magnitude
of their problems and their capacity to take in adjustment
measures widely differ from each other.
The capability to implement economic reform measures without
causing economic and political instability is crucial because
such measures are always integrated into every debt-reduction
program. And such adjustments usually require big sacrifices on
the part of both the people and government of debtor countries.
In fact, Indonesia's success in servicing its foreign debts and
in maintaining a high international credit standing should be
attributed to its capability to implement sharp adjustments,
notably deregulation measures, without causing economic and
political instability.
One may question the advantages of too strong a government in
terms of democratic principles and the reliability of political
stability in the long-term. The fact is, however, that the
Indonesian government is so strong that it is capable of taking
unpopular reform measures even a few weeks before a general
election-- something which is unthinkable in developed countries
with a mature democratic system.
The requirement of sharp economic adjustments may in fact be
one of the formidable challenges for the debtor governments to
implement. But the LDC debtors should realize that domestic
economic reforms are a must in every effort to solve debt
problems.