RI urged to apply for debt relief arbitration

JAKARTA (JP): Indonesia should strive for a "fairer" debt negotiation mechanism as part of efforts to force foreign creditors to write off some of the country's sovereign debts, according to experts.

Kunibert Kaffer, a senior economist from the University of Vienna, suggested on Wednesday that the government apply an international arbitration procedure to allow Indonesia, as the debtor, to have an equal standing with creditors in debt talks.

"This (arbitration procedure) would be a fundamental change from the present management of debts," Kaffer said in a news conference organized by INFID, a non-governmental organization (NGO) which has been actively campaigning for a partial write off of the country's sovereign debts.

The arbitration procedure would generate two generally accepted principles: the rule of law and the respect for human rights, he added.

Kaffer said that the arbitration procedure was based on the same principle as chapters nine and 11 of the U.S. Bankruptcy Law.

He explained that while chapter 11 was designed to resolve the debt overhang of the private sector, chapter 9 was specifically to protect the municipality from having to cut down on its public services due to over-indebtedness.

Kaffer said that the principle could also be applied at sovereign level so that countries with indebtedness problems could seek a partial debt write off to allow them to provide "the minimum service" to their people.

"No debtor should be allowed to let its children strive just to pay debts," he said.

He said that under this new procedure, both creditors and debtors would select a neutral arbitration panel to decide on the size of debt reduction and on which debt to be written off.

Kaffer said that the present debt management mechanism was unfair because the creditors had been dominating the debtors.

"Presently, creditors are judges, bailiffs, experts and very often lawyers of the debtors all in one. You're not at the same level.

"By contrast, in the arbitration process you're at the same level," he said.

He said that under the arbitration procedure, the people of indebted countries had the right to be heard by the panel through the representation of NGOs and UN bodies such as UNICEF.

Kaffer added that the arbitration procedure was supported by various prominent parties, including UN Secretary-General Koffi Annan, the working committee of the OECD and Harvard economist Jeffry Sachs.

Indonesia's overseas debts total about US$150 billion, of which half is public debt.

There has been pressure for the government to seek a reduction in debt, particularly on the grounds that about 30 percent of the debt was allegedly corrupted by the previous government.

Jurgen Kaiser of Jubilee 2000, an international group campaigning for debt relief for poor countries, said that Indonesia was already included in the severely indebted low income countries, or SILIC, which should receive a debt write off facility from the Paris Club of creditor nations.

The Paris Club agreed in April to reschedule some $5.8 billion of the country's foreign debts.

But Kaiser said that debt rescheduling was not enough because it merely postponed the debt payment and would only cost the country an additional half a billion dollars in interest rate charges.

He said that 32 countries, including Indonesia, had been included in the SILIC category and are entitled to the Paris Club debt write off facility, but the grouping had declined to provide the facility to Indonesia.

Kaiser also supported the suggestion that Indonesia should strive for the arbitration procedure in order to negotiate a reduction in its debt.

He said that Jubilee 2000 had been pushing the German administration and parliament to help Indonesia obtain a debt reduction facility.

"But the key to a real solution would be a clear demand from the Indonesian government," Kaiser said.(rei)