Sat, 15 May 2004

RI, Germany agree US$29.25m debt swap deal

Tony Hotland, Jakarta

Acknowledging the success of two earlier debt swap deals, the Germany government has announced that it will enter into a third deal with Indonesia worth 25 million euros (US$29.25 million) for environmental projects.

Germany's deputy minister for economic cooperation and development, Uschi Eid, said that the German government was pleased with the ongoing projects being implemented under the first two debt swap deals.

"Our government is also interested in stronger and more effective cooperation to protect the natural resources of Indonesia. That's why the third deal is dedicated to the environmental field," she told a press conference here on Friday.

Eid was on a five-day visit to Indonesia. She met with several non-governmental organizations (NGOs) and economic ministers, and also visited a number of Indonesian-German projects.

The third deal has yet to be officially signed, but discussions about what type of environmental projects will be involved are currently underway with the Ministry of Forestry and the Office of the State Minister for the Environment.

Debt swaps are usually carried out to reduce a country's debt by requiring the debtor to spend a specified amount of the original debt on financing certain programs that are of concern to the donors. As a consequence, the borrowing country does not have to repay the amount of the debt that is used for these programs.

Under the Indonesian-German debt swap scheme, Germany will write off a certain amount of debt after Indonesia spends 50 percent of the renounced amount in rupiah on projects that have been agreed by both governments.

Indonesia owes up to 1 billion euros to Germany.

The two countries signed the first debt swap deal worth 25.6 million euros in December 2000 for education projects. As a consequence, Indonesia must spend 12.8 million euros to build and equip 511 learning resource centers in 17 provinces to enhance the quality of teacher training in the basic sciences. These projects are nearing completion.

The second deal, involving 23 million euros, was arranged in October 2002. The two governments agreed to dedicate the deal to improving primary and secondary education in eastern Indonesia by building 100 new schools. The building of the schools is currently underway and is expected to be completed by 2006. Indonesia is obliged to invest 11.5 million euros.

No debt from the first two deals has been written off yet.

The implementation of all the projects under the debt swap deals is monitored German development bank KfW's branch in Jakarta.

Also on Friday, KfW signed two agreements with the Ministry of Finance. The first agreement involves a disbursement of nine million euros in a soft loan and one million euros in grant aid for the purpose of improving industrial pollution control.

The second one deals with the provision of a five million euro grant by KfW to support nationwide campaigns, training, and grassroots work in preventing the spread of HIV/AIDS.