FINANCE: Indonesia and Cote d’Ivorie Win Modest Debt Relief

By Julio Godoy Reprint | | Print |

Julio Godoy

PARIS, Apr 12 2002 (IPS) - The Paris Club offered only modest debt relief to the governments of Indonesia and the Côte d’Ivoire after negotiations this week.

The Paris Club, an informal group representing the 19 most important creditor countries, accepted the Côte d’Ivoire (Ivory Coast) as a heavily indebted poor country (HIPC). The HIPC status entitles the West African country to swap a minor part of its foreign debt for poverty reduction and development programmes.

The relief offered covers 2.26 billion dollars, the debt the Côte d’ Ivoire contracted before 1983. Its total foreign debt is 10.5 billion dollars. The agreement can provide for writing off 90 per cent of the debt, and under exceptional measures the whole of it. But for that the Côte d’ Ivoire must qualify as an enhanced HIPC.

The offer is “not really sensational”, says Juergen Kaiser, an economist with the German church campaign Erlassjahr (Year of Debt Remission).

Francis Lemoine, debt policy analyst with the non-governmental organisation Debt and Development (EURODAD), says the compromise “only indicates the bilateral creditors’ agreement to qualify the Côte d’Ivoire as eligible for the HIPC programme.”

The real test for the Côte d’Ivoire will be “to obtain resources from creditor countries under the HIPC program,” Lemoine says. “It will also be important to see which criteria are used to calculate the amount of debt relief needed to reach debt sustainability as this will influence the overall magnitude of cancellations.”

The HIPC programme is a scheme to help heavily indebted poor countries reduce their debt burden to a level that allows them back to a sustainable growth path. The programme aims to influence these countries to invest in human development and poverty alleviation.

The indebted countries must also practice what the World Bank and the International Monetary Fund call “sound economic policies” for a period of at least three yeas. In exchange for such development policies, creditor countries agree to write off a substantial part of their official loans.

After the negotiations with the Paris Club, the Côte d’Ivoire must now agree a timetable with the World Bank and the International Monetary Fund to carry out development and anti-poverty measures.

The Paris Club also agreed Friday to extend the maturity of short-term Indonesian liabilities of 5.6 billion dollars. The payments were otherwise due by December 2003.

The Indonesian government obtained additionally a rescheduling of 340 million dollars debt to commercial banks and to countries outside the Paris Club.

But this will not be enough, experts said at a meeting ahead of the official negotiations. Indonesia has a foreign debt of 73 billion dollars and an internal debt of 60 billion dollars, the experts pointed out. That debt of 133 billion dollars is more than four times Indonesia’s annual budget.

“If you compare these 133 billion dollars with the 5.6 billion dollars the Paris Club has accepted for rescheduling, you realise how silly the whole process is,” says Michel Rocard, former French prime minister.

But an Indonesian official says “we obtained a period of grace of 20 years for this debt.” He calls this “a good compromise.”

The Indonesian government sent a high-level delegation of ministers and senior officials, including officials dealing with high-level corruption to the Paris talks. The World Bank estimates that at least 30 per cent of all foreign Indonesian debt was ‘diverted’ by corrupt officials under former president Suharto who was ousted by a popular revolt in May 1998.

Indonesian Minister for Economic Affairs Dorojatun Kuntjoro-Jakti, who headed his country’s delegation, says the agreement will help his government fulfil its budgetary objectives for the years 2002 and 2003.