RI to seek 'Islamabad Terms' at Paris Club

RI to seek 'Islamabad Terms' at Paris Club

Dadan Wijaksana, The Jakarta Post, Jakarta

Bank Indonesia is hoping the upcoming meeting with the Paris Club
of creditor nations might come up with the most beneficial deal
to Indonesia in terms of debt rescheduling, similar to the terms
given to Pakistan.

"The important thing is how we can seek the best possible deal
from it. If we can get a deal like Pakistan's, that's a
reasonable achievement," BI Governor Sjahril Sabirin told
reporters on Friday.

Indonesia and its creditor nations are scheduled to meet in
April in Paris to discuss the rescheduling of the country's Rp 27
trillion (about US$2.6 billion) debt, both principal and
interest, due this year.

The rescheduling facility is crucial to help the government
achieve a budget deficit of not more than 2.5 percent of gross
domestic product (GDP).

The Paris Club groups together Indonesia's major sovereign
creditors for talks on debt rescheduling.

Bank Indonesia senior deputy governor Anwar Nasution said
earlier on Thursday that it was still possible for Indonesia to
get a very favorable debt rescheduling deal from the Paris Club,
if it were willing to get tough against terrorism, as demanded by
the U.S. government.

He was quoted in media reports as saying that Pakistan had
managed to obtain soft terms and conditions because the country
had been cooperative with the U.S. government in the fight
against terrorism.

He said that the generous terms agreed with Pakistan were
popularly referred to as the "Islamabad Terms."

Last year, Pakistan was granted generous terms and conditions
in rescheduling its $12.5 billion debt by the Paris Club, in what
the latter regarded as a bid to help kick-start the country's
economy.

Under the deal, two-thirds of the debt was rescheduled over 38
years and the rest over 23 years, with 15-year and five-year
grace periods respectively.

There have been accusations that certain militant groups,
linked to the Sept. 11 terrorist attacks in the U.S., have been
operating in Indonesia.

But, unlike neighboring countries such as Malaysia and the
Philippines, Indonesia has been lagging behind in efforts to get
tough and rid itself of terrorists.

Anwar advised the government to start making intensive
political approaches toward donor countries, including main
creditors like the U.S. and Japan.

According to him, a success at the meeting would be
beneficial, as it would give the government more breathing space
to make a larger budget allocation for development spending.

The success of the Paris Club meeting would also depend on the
implementation of various reform measures agreed with the
International Monetary Fund. These include the sale of Bank
Central Asia, which is now in progress and completion of the anti
money-laundering law, currently being debated at the House of
Representatives.

The government's debt currently stands at some $130 billion,
or some 90 percent of GDP, with external debt at close to $70
trillion.

For 2002, the allocation for debt repayment reaches Rp 136.2
trillion, or some 40 percent of total state expenditure.

Due to its heavy weighting in the budget, the government has
been forced to ask for a rescheduling of the debt interest
payments, something the country has never done before.

However, seeking rescheduling in interest payments could also
create other risks.

Some economists have warned against deferring interest
payments, saying the move could downgrade the country's sovereign
rating, thus creating additional new pressure on the rupiah and
raising the cost of borrowing for the corporate sector.

International rating agency Standard & Poor's has already
threatened to downgrade the country's long-term sovereign debt
rating, should the Paris Club creditors suggest holders of the
country's commercial bonds bear a similar burden.

If that were to happen, Indonesia's rating would be downgraded
to "selective default", putting off potential investors even
more.