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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