PARIS CLUB AGREEMENT FAILS TO PROVIDE A LONG TERM SOLUTION FOR INDONESIA'S DEBT 

By Romilly Greenhill
April 26th 2002

On 12th April 2002, Indonesia went for the third time before the Paris Club group of bilateral creditors to seek relief on part of her massive $76bn public external debt. Of this, Paris Club creditors are owed $41.4bn, $7.5bn of which was due to be repaid by Indonesia up to December 2003. Indonesia's debt has sky-rocketed to completely unsustainable levels since the 1997 Asian financial crisis, and is now seriously undermining her ability to provide basic social services to her people - a people who, since the Asian financial crisis, have seen an almost four-fold rise in poverty.

Prior to the meeting, the International NGO Forum on Indonesian Development (INFID), together with a group of European NGOs including Jubilee Research, organised a conference calling for 'Alternatives for Indonesia's Debt' in Paris. In a joint statement made prior to the Conference, the co-organising NGOs called for the Paris Club creditors to provide a comprehensive, long term solution to Indonesia's debt problems, based on the human development needs of her population as set out in the Millennium Development Goals, and realistic assumptions of the future outlook for the Indonesian economy . 

In addressing the conference, Nancy Birdsall, President of the Centre for Global Development in Washington, called for Indonesia to be given equivalent treatment to the HIPCs in terms of debt relief. According to analysis undertaken by Ms Birdsall and her colleague John Williamson in a new book released last week , achieving long term debt sustainability in Indonesia will mean cancelling a total of $59.5bn of her external debt, a figure which should be equally shared across multilateral, bilateral and commercial creditors. Similarly, analysis by Eurodad based on a 'human needs' approach to debt sustainability, found that Indonesia would need to have 79%, or about $29bn of her Paris Club debt cancelled, if she is to protect the basic human rights of her population . 

The outcome of Indonesia's Paris Club deal was, compared to these recommendations, disappointing. The Paris Club deal has effectively reduced Indonesia's debt service payments from $7.5bn to about $2.7bn between April 2002 and December 2003, meaning that her debt service will be brought to within the limit for debt sustainability proposed by Birdsall and Williamson. However, the deal does not provide for outright cancellation of any of Indonesia's debt. Debt service which is not paid now will merely be shifted to later years - simply placing the burden of debt repayments onto future generations. 

The Paris Club deal, therefore. completely fails to provide the long term solution to Indonesia's debt problems called for by INFID, Jubilee Research and others. According to INFID, the Paris Club agreement is merely providing 'aspirin to treat a haemorrhage .' The deal also assumes that by the end of 2003, the Indonesian economy will have recovered sufficiently that no further debt relief will be required. But according to Binny Buchori, INFID's Executive Secretary, these assumptions are not realistic. Instead, last week's agreement makes it even more certain that Indonesia will be back in front of her Paris Club creditors in 2004. 

Moreover, the deal provided takes no account of the fact that much of Indonesia's external debt was contracted by the corrupt and repressive regimes which ruled over Indonesia until 1997. As the World Bank themselves have admitted, at least 30% of their loans were lost to corruption in Indonesia and it is likely that similar figures apply for Paris Club loans. Worse, many of the loans made by creditors such as the UK were used for the purchase of military equipment in order to repress the Indonesian people. Of the total debt owed by Indonesia to the UK, for example, roughly half, or £700m, is accounted for by military loans. 

Jubilee Research and other NGOs believe that a fair, comprehensive and long term solution to debt problems such as Indonesia's will never be achieved through secretive, creditor dominated negotiations such as those that take place within the Paris Club. Instead, we are calling for an open, fair and transparent process for debt negotiation, through an independent arbitration panel, with the full participation of civil society. Only then will can debtors hope for justice, and will creditors start to take responsibility for their actions.