The World Bank Clarifies

The World Bank Clarifies

In the July 22 edition of The Jakarta Post, your
correspondents write I "dismissed" a demand for debt relief
saying "that under no circumstances did Indonesia deserve such
debt relief". Under no circumstances, would I make such a
statement.

What I did say to your reporters was that the international
community does not recognize what's known as "odious" debt -- or
donor money that has been misused by corrupt regimes -- and
therefore it is not possible for the World Bank to address the
issue of debt reduction in Indonesia.

I also said that to be granted debt relief, Indonesia would
have to qualify under the Highly Indebted Poor Countries (HIPC)
initiative. The World Bank considers it fortunate that
Indonesia's debt has never been high enough to qualify for HIPC,
which reduces debt for the poorest countries in the world. A
rescheduling of debt in the years from 1999-2003 under the Paris
club, has been enough to get Indonesia back on its feet.

The good news for Indonesia is that its debt -- both to
external and domestic sources -- is now below 60 percent of GDP,
down from 100 percent four years ago. The outstanding balance to
the World Bank amounts to 8 percent of the total debt.

Your reporters were also told that it does not make sense for
Indonesia, a country where half the population lives on less than
US$2 a day, to turn down interest-free money from the
International Development Agency (IDA), an arm of the World Bank
set up to help poor countries achieve stable, sustainable and
equitable growth. Last year Indonesia did not take up the offer
of $150 million of interest-free IDA money, funds that could have
been put to good use of building schools and health care
facilities.

World Bank money is very cheap, that's because the Bank is
owned by 184 countries, including Indonesia, therefore very
creditworthy, and able to raise money at low cost. As well as
interest-free IDA money, the Bank's rate on 10-year loans from
the International Bank for Reconstruction and Development (IBRD)
is 4.5 percent. Interest on the Indonesian 10-year Government
Global Bond is more than 8 percent.

BERT HOFMAN
Lead Economist
The World Bank Office
Jakarta

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