Wednesday, January 13, 2010

Debt Relief of Indonesia

Sulistiono Kertawacana
Legal Practitioner in Jakarta
Monday, July 25, 2005
Bahasa version
Suara Karya Version

By mid June, British Prime Minister Tony Blair and U.S. President George W. Bush agreed to remove 100 percent of the debt of poor countries on the African continent. How is about Indonesia? Does Indonesia have chance to get debt relief or necessary to apply Indonesia debt?

Reasons for Debt Relief
In the history of foreign debt, debt relief (part or all) occur because of legal or economic reasons. Economic reasons related to the debtor country's economic sustainability. As for legal reasons related to the legitimacy of a regime or misuse of loan funds
The reason the law looked the debt as odious debt (debt unclean) or criminal debt (debt criminal). Leonce Ndikumana and James K Boyce (1998) distinguish the definition of both.

Odious debt is a loan made by the illegitimate regime in a democratic perspective, that is not representative, authoritarian, dictatorial and oppressive used to oppress people.

Criminal debt is part of the loan funds to the countries that have been corrupted by government officials and / or his cronies. Therefore, it is not fair if the people of debtor countries must pay the entire debt.

The goal is that creditors are not just looking at loans disbursed economic risks (ability to return the debt). For, if the odious debt or debt uncategorized criminal debt, there is a risk not getting paid (in total).

According to the International Law Commission (1977), the doctrine of odious debts firstly recognized in 1898 when the U.S. refused to pay debts in the negotiations Cuba Spanish-American War. U.S. claims to both the U.S. and Cuba are not responsible for the debt-Cuba on the grounds, including the debt accumulated during the colonial Cuba and does not provide benefits for Cuba. Soviets did not acknowledge the debt that has accumulated the Tsar in 1921 with a similar reason.

Costa Rica considered that debt accumulated Frederico Tinoco regime to the Royal Bank of Canada was odious debt in 1923. This case ended up in the UK arbitration vs. Costa Rica.

Chief Judge of the United States, Taft set as illegitimate debt (won Costa Rica). The reason, the Bank has to know the debt is past president of F. Tinoco to private interests while in exile in foreign countries (Annual Digest of Public International Law Cases, 1923).

Reason for debt relief to economic reasons was when Germany first made after World War II. Obligations of Germany to creditors were DM 1.5 billion per year. This amount is burdensome. It was feared that the economy would be a mess (if it remains unpaid) which resulted in the emergence of chaos that triggered a model leader Hitler with his Nazi.

German negotiator, Josef Abs, managed to convince the creditors that Germany pay its debts in a healthy ratio of its foreign trade balance. The talks held in London on February 27, 1952 it agreed to remove the foreign debt of nominal Germany 51.5% (Ivan A Hadar, 2004).
Second, when the global debt problem, in 1982 Mexico declared itself "insolvent" and unable to pay off the obligation to pay debt principal and interest received private debt. This step is then replicated many other Latin American countries. The international community had together helped .

Model of World Bank

Historically, the World Bank has several models in order to reduce the debt the debtor countries. Those are Brady Plan, Toronto Term, Naples Term, and High Indebted Poor Countries Initiatives (HIPC). All of them requiring debtor countries Structural Adjustment Program run by the IMF.

Brady Plan initiated by the U.S. Finance Minister Nicholas Brady when trying to cope with external debt (ED) crisis Mexico. Terms countries get debt relief if 3 of 4 conditions met. They are (i) ED ratio of Gross National Product (GNP) of more than 50%, (ii) ED ratio of exports of more than 275%, (iii) the ratio of debt to exports increased more than 30%, and / or (iv) the ratio increased interest rates on exports more than 25%.

Toronto terms given to the debtor countries with GNP per capita criteria is less than US $ 610 (in 1990) or who experience debt problems and have continually balance of payments prospects are poor.

Naples terms given to the debtor countries with GNP per capita criteria is less than U.S. $ 500, or (ii) the ratio of net present value of the exports ED more than 350%. If the first criteria is not met, the debt reduction was probably less given.

HIPC initiative provided for the debtor country in a condition to the Naples terms provided by the International Development Association. Debtor is still sustainable if the ratio of net present values of its exports ULN 200-250% and the ratio of external debt service to export in the range 20-25%.

Indeed, the proposed debt relief for poor countries not only has long sounded. Jubile petition in 2000 signed by about 120 countries and supported, among others, Kofi Annan, Tony Blair, Nelson Mandela, and Gerhard Schroeder campaigned for debt cancellation of poor countries. According to him, every pound sterling of creditor countries sends as aid, requiring debtor countries to pay 9 Pounds Sterling

Indonesia Case

Its report in 1997, which entitled Summary of RSI Staff Views Regarding the Problem of ‘leakage’ Bank Project budgets, the World Bank, estimates that a minimum of 20% -30% of Indonesia's development budget funds being diverted. Of course, it is no exception World Bank projects.

World Bank internal report "Dice memorandum" detailed the leaks, which was below 15% in the Department of Health and the Ministry of Mines and Energy, 15% -25% in 8 departments (such as agriculture, education, public works, and religion), more than 25% in four departments (including forestry and domestic).Article 3 paragraph 5 (b) the Articles of Association (Articles of Agreement) World Bank (IBRD) World Bank would manage to make rules to ensure that loan funds will be used only for purposes agreed upon, by giving appropriate attention to economic considerations and efficiency , unaffected by political considerations and other non-economic.

Therefore, the World Bank must do the appropriate actions to prevent the leakage of funds lent to Indonesia. Moreover, Indonesia has the Corruption Perceptions Index ranks the top as the most corrupt country in the world.

But so far the World Bank (especially during the Suharto regime) as a blind eye to leak 20-30% loan to Indonesia as has been acknowledged in various World Bank reports that specified the Memorandum Dice. New World Bank revealed the corruption prevention loan fund since 1997 as noted in the report Helping Countries Combat Corruption: The Role of the World Bank.

However, based on General Accounting Office report (Institute of the U.S. Congress requested the investigation of corruption at the World Bank) in April 2000 entitled Management Controls Stronger, but Challenges in Fighting Corruption Remain concluded the World Bank and the debtor countries do not always act in accordance with auditing procedures for the project and oversight of financial management and loan disbursement process.

Leakage World Bank debt is debt that criminals might be legal reasons petition debt relief for Indonesia. Under Article 10 paragraph 3-letter number 10 C General Conditions Applicable to Loan and Guarantee Agreement of the World Bank declared open the possibility for the Court and the UN role in the dispute between the World Bank with the client (debtor countries-pen).

Currently Indonesia is also the state budget is still in tatters and the debt trap by ignoring the education sector and health services (currently the State Budget Law and Law on the National education system is being tested material on the Constitutional Court). And two things were very important for the sustainability of human development of Indonesia. Therefore, in addition to internal efforts to external efforts are also needed.

Unfortunately, until now there has been no legal action by the debtor countries themselves as well as representatives of NGOs through a lawsuit (legal standing). It is time we use the legal instruments in the approach to debt elimination. Is Indonesia will be a pioneering and precedent debt pattern? Let us try!

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