RI will not seek debt relief: Kwik

JAKARTA (JP): Coordinating Minister for Economy, Finance and Industry Kwik Kian Gie reiterated on Wednesday that the government would not seek debt relief from its international lenders at an upcoming donors meeting in February.

Kwik said that seeking a debt haircut would cause Indonesia to become isolated from the world and cut off the country from badly needed external financing sources.

"A haircut would only be possible if all the people of Indonesia wanted to live miserably," he told reporters following a meeting of representatives of the Consultative Group on Indonesia (CGI), the country's major donor grouping.

"The scope of the misery could not be estimated. Once we ask for a haircut, then at the same time Indonesia would be isolated from the world and the inflow of funds would stop," Kwik said.

"It wouldn't be the end of the world but Indonesia would suffer deep misery," he added.

Several leading non-governmental organizations have stepped up pressure on the government to seek debt relief on the grounds that some 30 percent of sovereign loans had been pillaged by the previous administration of former president Soeharto.

Indonesia's sovereign loans are estimated to have reached some US$70 billion.

Kwik said the new government of President Abdurrahman Wahid was determined to be effective in the utilization of foreign loans and to prevent corruption.

He said that this issue would be at the top of the agenda at the Feb. 1-2 CGI meeting which will be held in Jakarta for the first time.

Asked to disclose the amount of foreign loans the government would seek from CGI, Kwik said that it was still being calculated.

Kwik reiterated, however, that while the government was determined to lower the country's dependence on foreign loans, it could not be done immediately.

"In the short term, it's not possible for Indonesia to reduce its debt as we need funds to stimulate the economy and to drive the recovery," he said.

Kwik said that the current government had changed the attitude toward foreign loans.

"Previous governments were happy if at every CGI meeting the country could have larger amounts of loans. But the new government will be happy to get a smaller amount of loans at the upcoming CGI meeting," he said.

Kwik said that the external financing needs of the 2000 budget could be fulfilled by the three traditional lenders which included the World Bank, the Asian Development Bank (ADB) and Japan.

"Given the budget outlook, we will still need significant budget support for the coming fiscal year," Kwik said, adding that much of this could be financed by "commitments already made."

"While there is likely to be a small residual gap, I am pleased to note that initial contacts suggest this will be covered by the World Bank, the Asian Development Bank and Japan," he said.

He said that the budget deficit next year was estimated at 5 percent of gross domestic product.

Kwik also said that in a bid to reduce dependence on foreign loans, the government had canceled some $1 billion in loans already committed by the World Bank and the Asian Development Bank for the current budget.

He added that the new government was determined to lift the country out of its economic crisis by pressing ahead with economic reform programs.

"Developing a sound economic program that will place Indonesia well on the road to recovery is perhaps the greatest initial test for the new government," Kwik said in a statement delivered at the CGI representatives meeting, which was held at the World Bank's Jakarta office.

Kwik reiterated that the government and the International Monetary Fund (IMF) were designing a new three-year economic program to be financed by the IMF.

Kwik said that in the area of banking reform, the government was committed to completing the reorganization and recapitalization of all of state banks by June 2000.

"At the same time, we plan to have complete the reorganization and consolidation of nationalized banks and closed down banks by September next year," he said.

"Following the reorganization and recapitalization, we will move forward with a vigorous program to privatize the banking system," he said.

He said that the privatization process would begin with an initial public offering of the nationalized Bank BCA by February 2000.

"We will then proceed with majority divestment of key state banks and other nationalized banks," he added.

Kwik also stressed the important role of the Indonesian Bank Restructuring Agency (IBRA) in raising funding to help finance the country's bank recapitalization program.

He reiterated that the bank recapitalization program next year would require gross interest payments amounting to some 4 percent of gross domestic product, absorbing more than 10 percent of the government's 2000 state budget. (rei)