Urip Hudiono, Jakarta – The public debate continues on how Indonesia should respond to the debt moratorium offer from the Paris Club creditor countries, as the offer itself is still vague in what it implies.
In its official statement last Thursday, the Paris Club announced an immediate debt repayment reprieve for countries devastated by the recent Asian tsunami disaster, to allow them to prioritize more resources for humanitarian and reconstruction needs.
The immediate debt moratorium will start until the World Bank and the International Monetary Fund (IMF) have made a full assessment of the countries' financial needs, after which each country can then ask for a further moratorium accordingly.
Debate, however, has continued as the scheme does not specify how long the assessment would take, which debts would be exempted during the assessment, and whether the terms and conditions for the possible moratorium beyond that period would still be seen as an exceptional case in relation to the disaster.
The government itself has decided to play it safe by considering the offer first and saying it would prefer grants over a debt moratorium, which could affect Indonesia's creditworthiness and put the country under another IMF program.
Several analysts, however, still insist that the government should seize the moment to push for a debt reduction, as well to help free the country from its current debt trap.
Economist Sri Adiningsih from the Yogyakarta-based Gadjah Mada University said the Paris Club's decision to be more specific about the debt moratorium only after an assessment shows that they would not give a package that exceeds the amount of damages suffered by the tsunami-stricken countries.
"It therefore depends on how the government can negotiate the debt moratorium's terms and conditions," she said.
Commenting on the fact that a moratorium would only mean shifting the repayment of debts to a later time, Adiningsih suggested the government should request that the payments be spread over a span of at least 10 years with a reduction in its interest, without ruling out the possibility of debt swap schemes.
Voicing a similar opinion, Bustanul Arifin from the Institute for the Development of Economics and Finance (Indef) said that a debt haircut would be more useful for Indonesia.
Bustanul, however, agreed with the government's decision to carefully consider the debt moratorium offer first before accepting it.
"The government must of course be prudent and really prepare their negotiations to get the most out of the debt moratorium offer," he said.
Economist Rizal Ramli meanwhile questioned the competence of the IMF in conducting the assessment.
"IMF's expertise is in planning fiscal and monetary policies, not in assessing damages," the former coordinating minister for the economy said. "Couldn't we do the assessment?" As the debates continues, the fact remains that Indonesia is in dire needs of debt relief – be it in the form of a writeoff, haircut or even a moratorium. A study by the National Development Planning Agency (Bappenas) shows that, if no relief is provided, it would take at least 10 years for Indonesia's foreign debt to reach a "safe level", which could be translated into a debt to gross domestic ratio (DTO) of 40 percent, and a debt to service ratio (DSR) of 25 percent.
Indonesia's foreign debt currently stands at US$78.25 billion, with a DTO of 55 percent and a DSR of 37.5 percent.