RI urged to apply for debt relief arbitration

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)