Paris Club interest delay possible, IMF says

by Berni K. Moestafa The Jakarta Post, Jakarta

24th October, 2001.

The International Monetary Fund (IMF) said on Tuesday it would be possible for the heavily indebted Indonesia to receive interest rescheduling on top of principal rescheduling under a third Paris Club deal which the government hopes to secure to ease the country's massive debt burden.

"In the past many countries have received both principal rescheduling and interest rescheduling. If this were to be the case for Indonesia, that would not be unusual or out of the ordinary compared to some other countries," the IMF's senior resident representative for Jakarta, David C.L. Nellor, told reporters.

Last week, local newspapers reported Minister of Finance Boediono as saying the government hoped to defer interest payments on debts owed to creditor nations grouped under the Paris Club.

He gave no figure in respect of the amount of principal and interest rescheduling the government was seeking to secure from a third Paris Club deal.

Previously, Indonesia had limited talks to deferring payments on the principal only, which amounted to US$5.8 billion under the second Paris Club deal hammered out in 2000.

According to Nellor, delaying interest payments was possible providing Indonesia followed the IMF's reform program.

"If there were to be a new Paris Club arrangement, it would also likely be the case that they would require an IMF program to be ongoing," Nellor said.

Some economists, however, have advised the government against seeking interest rescheduling.

Noted economist Emil Salim was quoted by Kompas daily last week as saying that creditor countries reserved interest rescheduling for heavily indebted poor countries only.

But with a huge overseas debt payment requirement next year -- projected at $10.9 billion -- seeking principal and interest rescheduling seems to be unavoidable to help maintain the 2002 state budget deficit at sustainable level of around 2.5 percent of gross domestic product.