Susilo says he prefers grants to loans

Fabiola Desy Unidjaja and Urip Hudiono, The Jakarta Post/Jakarta

Following creditor countries' offering debt moratoria to tsunami- stricken countries, President Susilo Bambang Yudhoyono has decided that Indonesia would only accept donations in forms that would not burden its economy in the long term.

Instead, he said, Indonesia would prioritize grants and maximize its domestic resources for the three- to five-year rehabilitation program for Aceh and North Sumatra.

"I will issue a decree regulating the relief and reconstruction programs, as well as the usage of foreign donations for the disaster-stricken areas," said Susilo.

"Foreign donations will be used only if we really need it. We will not receive loans, but will maximize grants from donor countries," he said on Friday after visiting the Indonesian Navy, which is coordinating logistics and supplies for Aceh.

Susilo said the decree would serve as a guideline for the reconstruction programs in Aceh as well as in Alor, East Nusa Tenggara, and Nabire, Papua, which were badly damaged by earthquakes last year.

Reconstruction should be in accordance with each province's blueprint, environmentally friendly and apply disaster prevention and mitigation efforts.

"Local traditions, religious and social customs will form an inherent part of the rebuilding program, out of respect for the Acehnese," Susilo said. He added that the government would need a year to normalize the situation in the province before the reconstruction program could be implemented.

Analysts supported the president's decision, and suggested that the government negotiate debt relief in the form of haircuts or write-offs and prioritize accepting grants.

Economist Ninasapti Triaswati of the University of Indonesia said the government should immediately start negotiations with creditors on the exact schemes and terms of their debt relief offers.

"Aid in the form of loans, even under soft terms, would just burden the state budget again," said Aviliani of the Institute for Development of Economics and Finance.

Indonesia owes some US$40 billion to the Paris Club -- a group of 19 major creditor countries -- and is expected to service up to Rp 46.5 trillion ($5 billion) in foreign debts this year.

At Thursday's international tsunami summit in the capital, donor countries pledged almost $4billion together for the affected countries. However, almost half of the fund is soft loans with a 30- to 40-year maturing period.

Of the 45 contributing countries, Australia has pledged the single largest grant at A$500 million ($382 million) and another A$500 million in interest-free loans.

Economist Chatib Basri, also an advisor to the office of the Coordinating Minister for the Economy, said it was up to the government to negotiate the details of the offers.

"As far as I know, the government has sent envoys to seek confirmation from creditors of the debt relief offers," Chatib said.

"What could be a problem in the negotiations is that Paris Club members usually have a non-discriminatory policy toward their debtors."