The 'futile' Paris Club

The Paris Club way of debt settlement does not work. It only covers up the core issue of debt for a while, without solving it. The government's debts will just create a problem after the specified 20-year-period of delay is over.

The government should 'push' creditors harder into granting more debt relief. It is necessary because, technically, the nation can no longer afford to repay its debts.

Roughly speaking, the government this year has to repay external debts worth around US$6 billion, assuming that it secures debt rescheduling from Paris Club III.

Therefore, no more new debts should be incurred, for example, by giving tax pardons to taxpayers in order to increase their compliance in paying tax.

Some observers suggest that the bill on state bonds currently being discussed by the government and the House include articles limiting foreign debt repayment, e.g. to 10 percent of state revenue.

Several circles have also proposed that creditors write off Indonesia's debts or at least provide debt relief, rather than mere debt rescheduling. Indonesia deserves such relief because it already belongs to the category of poor countries with annual per capita income of about $300, far lower than the average $800 for the group.

The debt cut or write-off is deemed proper as donor institutions like the World Bank have failed to take firm action when they were aware of corruption of their funds by recipient officials, so they should also be held responsible.

The German model of debt settlement should serve as an example. It provides debt relief through compensation made by Indonesia's efforts at conserving its environment. There are in fact various ways of settling national debts other than the conventional pattern.

-- Bisnis Indonesia, Jakarta