Indonesia Mulls Debt Moratorium Offer

Indonesian Foreign Minister Hasan Wirayuda said his country was mulling the offer of a debt repayment freeze by the Paris Club of donor nations.

"We will continue to have discussions on this offer of a debt moratorium," Wirayuda said after a meeting with Fischer in Berlin on Thursday.

His remarks come a day after the Paris Club of creditor nations offered an unconditional freeze on debt repayments for Indonesia, the Seychelles and Sri Lanka to help them rebuild their ravaged coastlines after the tsunami that struck on Dec. 26.

Indonesia, the nation worst-hit by the tidal wave disaster, has an external debt of $132 billion (€100 billion) according to the World Bank, of which more than $70 billion is owed to public creditors or has been guaranteed by public bodies and is eligible for the Paris Club offer. Indonesia would have to pay more than $3 billion in principal payments alone this year -- about the same amount it needs to recover from the crisis.

German Foreign Minister Joschka Fischer said the debt moratorium was "an important step forward" and "an element of aid that cannot be underestimated."

Doubts linger

However, Wirayuda admitted that his country still had lingering doubts about taking up the offer.

"We do not want that it harms our economy," he told reporters in Berlin. "We don't want the market to go wrongly and we don't want our creditworthiness to be negatively influenced."

In contrast to Indonesia, countries such as India, Thailand and Malaysia have already decided not to accept the freeze on debt repayment for fear they would lose their credit rating on financial markets.

Indonesia's fears were echoed by German Finance Minister Hans Eichel, who also held talks with Wirayuda on Thursday.

"One must be very prudent as far as the Paris Club is concerned," he said and underlined that any debt measures "could put financial credibility in peril. And that is something they (Indonesia) do not want. Indonesia is neither in an economic crisis nor a financial crisis and clearly prefers aid to a debt freeze."

Complete waiver problematic

The Paris Club of donors' decision to suspend the debts of tsunami-hit nations rather than completely waive it has come in for criticism from aid organizations such as Oxfam and anti-globalization group Attac.

But, experts have pointed out that a complete debt waiver could be problematic. Rolf Langhammer of the Institute for World Economics in Kiel told Deutsche Welle that it wouldn't just damage the credit reputation of the nations, but could also prompt a "chain reaction" with other countries who have also suffered other catastrophes lining up to stake their claim.

Langhammer also added that it wasn't clear whether forgiving debt "would really lead to the money reaching the ones really suffering."

Wirayuda plays down troop restrictions

On Thursday, Wirayuda also played down earlier statements by the Indonesian government that foreign troops involved in emergency aid operations in the devastated Aceh province should not stay longer than three months.

The foreign minister stressed that Jakarta welcomed the military aid deployments, including Germany's, but added that their presence was a "delicate issue for the Indonesian public."

Wirayuda said that restrictions on the movement of aid workers in Aceh were only for their own safety and denied the rules would hinder international relief operations. At the same time, he said he was open for the truce offer made by separatist Muslim rebels in Aceh to the government in Jakarta.

"There is a silver lining on the horizon," Wirayuda said.

German Foreign Minister Fischer underlined his government's long-term commitment to help Indonesia overcome the devastation wrought by the tsunami disaster and said that German soldiers stationed in Aceh with a mobile field hospital and relief supplies ship, would "stay in the region as long as it makes sense and as long as the Indonesian government wished."