Seizing the momentum

Seizing the momentum

It was really good move on the part of the government to send
a special team led by Foreign Minister Hassan Wirayuda to Europe
last week to follow up the initiatives by the governments of
Germany, France, Italy and Britain, on debt moratorium to help
Indonesia cope with the Dec. 26 earthquake and tsunami in
northern Sumatra. The effort, as Hassan said yesterday, was like
hammering the iron while it is still hot, riding on the momentum
of international sympathy for Indonesia and seizing upon the
massive humanitarian gestures.

There is nothing to regret, even though the team only got a
firm pledge of US$350 million in debt relief from the Paris Club
of 19 sovereign creditors. As the mission was only an initial
exploration of what creditors would be willing to give Indonesia,
the outcome is already quite encouraging, especially as the Paris
Club's rules of operation require consensus decisions. Moreover,
the debt relief was obtained without any conditions.

Indonesia should indeed turn down any offer of assistance that
is tied to the normal terms and conditions that the Paris Club
imposes on debtors in financial crisis. We are not in a financial
crisis, nor in an economic crisis. The government has never made
any official request for debt moratorium. It only responded to
the initiatives of several major sovereign creditors with regard
to the natural disaster in northern Sumatra. We also know that
there have been several precedents whereby the Paris Club waived
its standing operating procedures to help natural disaster-hit
countries such as Haiti and Kosovo.

It is also understandable, however, that the Paris Club
meeting last Wednesday decided on a moratorium only for
Indonesian debt payments due over the next three months, which
amounts to some $350 million. Since the debt scheme is tied to
the disaster in northern Sumatra, it is sensible and logical that
creditors wait until a final, comprehensive assessment of the
devastation is made, along with its economic impact and estimated
financial requirements for the reconstruction of Aceh.

The team took other important initiatives, not only exploring
debt moratorium and grants, but also other possible aid schemes
such as debt swaps (for projects in Aceh), soft loans and even
assistance through trading opportunities. The team's exploration
of preferential tariffs for Indonesian products is quite
strategic because of the multiplier effects and sustainable
impact of trade on the economy.

Even new debts such as the $390 million offered by the French
government as a soft loan -- repayable within 30 years with a 10-
year grace period and annual interest of only 1 percent -- could
be a good option. Such a loan, for example, could be used to
restructure old debts that carry higher interest and shorter
maturity. Whatever avenue that is effective in cutting our debt,
or does not add to future debt payments should be utilized.

All the aid or debt schemes mentioned above are very relevant
and should be explored further because what the government is now
seeking is no longer funds for emergency relief. Rather, it is
for financing the rehabilitation of Aceh, that could take at
least five years, and for reconstruction, that could take more
than seven years.

The annual meeting of Indonesia's creditor consortium (the
Consultative Group on Indonesia, CGI) that begins here today is
another good forum to follow up on what Hassan's team started in
its exploratory talks in several European cities last week. After
all, most major Paris Club creditors are also members of CGI.
Another mission to Europe by the finance and trade ministers with
more concrete aid proposals will keep the momentum of creditor
and mass media attention on Aceh before the agenda of
international interests moves elsewhere.

More important, though, is that the government and the World
Bank accelerate the assessment of damage in the northern part of
Sumatra so that projects for rehabilitation and reconstruction
can immediately be designed and offered to creditors for
financing.

The government, however, is well advised to realize that the
management of and accountability for the huge amount of emergency
aid that has been flowing to Aceh over the past three weeks will
very much determine any further assistance from major creditors
for Aceh's rehabilitation and reconstruction.

The outpouring of international sympathy should not lull the
government into complacency. Experience in other countries has
shown that debt relief is always tied to a comprehensive
development strategy that hinges on good governance, building
strong institutions and promoting growth.

Further down the line, this means continued implementation of
the series of key economic reforms, including sound macro-
economic policies that underpin the creation of a sound legal
system, the establishment of a reliable and accountable financial
system, and the fostering of self-sustaining private sector
development.