RI seeks debt deal from Paris Club

RI seeks debt deal from Paris Club

JAKARTA (JP): Indonesia needs a further debt-rescheduling
facility from the Paris Club of creditor nations to lift pressure
from foreign debt payments in the 2002 state budget, new
Coordinating Minister for the Economy Dorodjatun Kuntjoro-Jakti
said on Friday.

Dorodjatun said Indonesia's budget next year would face
difficulties without another Paris Club debt rescheduling deal.

"I always thought that the first and second Paris Club deals
would be enough," he said.

"But I've noticed that it isn't that easy, so we are forced to
consider doing further negotiations with the Paris Club," he said
without elaborating.

Last year, the Paris Club of 19 government creditors agreed to
reschedule US$5.8 billion of Indonesia's debt due to its maturity
between April 2000 and March 2002.

Of the $5.8 billion in debts, $2.21 billion matured last year,
$2.8 billion this year and another $717 million will mature in
the first quarter of 2002.

In 1999, Indonesia inked its first Paris Club debt
rescheduling deal worth $4.2 billion, which was due to mature by
March 2000.

The Paris Club deals have allowed the government to allocate
more funds to development spending and social needs.

The deals have also helped boost foreign creditors' confidence
while releasing pressure on the rupiah.

However, a third deal will likely depend on how Indonesia
conforms with the Paris Club's requirements for the current
condition: meeting economic reform targets set under the
International Monetary Fund (IMF) program.

Indonesia's foot-dragging on some of these reform targets last
year prompted the IMF to suspend a $400 million loan tranche.

Consequently, the move annulled the rescheduling deal of $2.8
billion for this year until after the IMF resumes its lending.

The government is struggling to secure a Letter of Intent
(LoI) from the IMF to unlock the fund's loans.

That would have to come prior to a September meeting of the
club, which will be held to review the remaining debts until
2002.

Indonesia hopes to secure the LoI by the end of August or
early September at the latest.

The Paris Club meeting is slated for September 10, said
Dorodjatun.

He said he expected an IMF team to arrive in Jakarta after
Indonesia's Independence Day on Aug. 17.

A senior government official said earlier that the IMF's
planned visit was to meet Indonesia's new government,
particularly its economics team.

Dorodjatun also added that he expected continued loan support
from the Consultative Group on Indonesia (CGI) to help finance
development spending in the 2002 state budget.

To this end, he said, the government must push ahead with
drafting the 2002 state budget.

"The budget must be clean and convincing when we present it to
the CGI," he said. The group will convene again in October.

Economists, however, have urged the government to cut its
reliance on foreign debts, due to its pressure on the state
budget.

The Brussels-based International Crisis Group (ICG) puts the
Indonesian government's foreign debts, including those of state
firms, at $84 billion.

In total, Indonesia's foreign and domestic debts amount to
some $154 billion, which is equal to the country's gross domestic
product, according to the ICG.

Dorodjatun said on Thursday that tackling Indonesia's massive
foreign debts was among his key priorities.

"Our debt situation is the worst ever in the history of this
republic," Dorodjatun said.

Earlier, American expert on Indonesia Jeffrey A. Winters said
this year's spending on foreign debt servicing was six times
higher than that for education, social and health care needs.

"It is the poor that suffers the most from this situation," he
said.

Moreover, Winters said, Indonesia continued paying what he
called illegitimate foreign debts totaling some $30 billion.

He said the $30 billion made up 30 percent of the foreign
debts that fell victim to corruption under the regime of former
president Soeharto.

He suggested that Indonesia ask for a suspension of payments
on the illegitimate foreign debts, saying it was unfair creditors
demanded their loans be paid back in full with interest.

He said Indonesia was in a strong legal position to ask
creditors for a debt moratorium before an international court.

World Bank officials have privately acknowledged the loan
abuse in the past.

On Tuesday, Australian Foreign Minister Alexander Downer said
his country and the World Bank would investigate the loan abuse
under a joint study to ease Indonesia's debt payments.

"We and the World Bank are now going to put together a joint
study on the structure of that debt and whether anything can be
done about it internationally," he said.

He made no comments on the possibility of a debt moratorium or
haircut on Indonesia's alleged illegitimate debts.

New Minister of National Development Planning Kwik Kian Gie
said it was unlikely that Indonesia would ask for a debt haircut.

"I've tried it before, and they (creditors) told me not to
even mention it (a debt haircut). Debt rescheduling is enough,"
he said.

Pushing ahead with demands for a debt haircut risked
isolation from international creditors, he warned.(bkm)