Governments urged special audits on foreign debt management

20 May 2008 by ANTARA News

A non-governmental organization urged the government
to conduct special audits on the management of Indonesia`s foreign debt in
order to ascertain its effectiveness from the viewpoint of the government as
its user and the creditors` responsibility.

"The use of foreign debt must be audited comprehensively and transparently
so that the public will have an understanding of the government`s rationale
in covering state budget deficits with foreign loans," Dani Setiawan,
chairman of the Coalition against Debt (KAU), said here Monday.

The public needed to know not only the benefits of foreign debt but also
that the indebtedness made Indonesia susceptible to creditor country
policies that could have a negative impact on the nation`s social, economic,
cultural and environmental conditions, he said.

Setiawan also asked the government soon to draw up a “more affirmative”
proposal to write off Indonesia`s debt as the government`s foreign debt
restructuring program so far had not succeeded in freeing the country from
its debt burden.

"About 40 percent of the State Budget every year is spent on paying
instalments on the principals of and interest Interest An amount paid in remuneration of an investment or received by a lender. Interest is calculated on the amount of the capital invested or borrowed, the duration of the operation and the rate that has been set. on the country`s foreign debt.
Because of this situation, the state budget fails to function as an
instrument to respect the people`s basic rights to education and health," he

In Setiawan`s view, the government should also remind the advanced countries
in the G-8 of the commitment they made 10 years ago to forgive poor
countries` debts although the World Bank World Bank
The World Bank was founded as part of the new international monetary system set up at Bretton Woods in 1944. Its capital is provided by member states’ contributions and loans on the international money markets. It financed public and private projects in Third World and East European countries.

It consists of several closely associated institutions, among which :

1. The International Bank for Reconstruction and Development (IBRD, 189 members in 2017), which provides loans in productive sectors such as farming or energy ;

2. The International Development Association (IDA, 159 members in 1997), which provides less advanced countries with long-term loans (35-40 years) at very low interest (1%) ;

3. The International Finance Corporation (IFC), which provides both loan and equity finance for business ventures in developing countries.

As Third World Debt gets worse, the World Bank (along with the IMF) tends to adopt a macro-economic perspective. For instance, it enforces adjustment policies that are intended to balance heavily indebted countries’ payments. The World Bank advises those countries that have to undergo the IMF’s therapy on such matters as how to reduce budget deficits, round up savings, enduce foreign investors to settle within their borders, or free prices and exchange rates.

and a few other international
financial institutions had put Indonesia in the category of countries
capable of repaying their debts.

"The qualification should not be applicable to odious debt Odious Debt According to the doctrine, for a debt to be odious it must meet two conditions:
1) It must have been contracted against the interests of the Nation, or against the interests of the People, or against the interests of the State.
2) Creditors cannot prove they they were unaware of how the borrowed money would be used.

We must underline that according to the doctrine of odious debt, the nature of the borrowing regime or government does not signify, since what matters is what the debt is used for. If a democratic government gets into debt against the interests of its population, the contracted debt can be called odious if it also meets the second condition. Consequently, contrary to a misleading version of the doctrine, odious debt is not only about dictatorial regimes.

(See Éric Toussaint, The Doctrine of Odious Debt : from Alexander Sack to the CADTM).

The father of the odious debt doctrine, Alexander Nahum Sack, clearly says that odious debts can be contracted by any regular government. Sack considers that a debt that is regularly incurred by a regular government can be branded as odious if the two above-mentioned conditions are met.
He adds, “once these two points are established, the burden of proof that the funds were used for the general or special needs of the State and were not of an odious character, would be upon the creditors.”

Sack defines a regular government as follows: “By a regular government is to be understood the supreme power that effectively exists within the limits of a given territory. Whether that government be monarchical (absolute or limited) or republican; whether it functions by “the grace of God” or “the will of the people”; whether it express “the will of the people” or not, of all the people or only of some; whether it be legally established or not, etc., none of that is relevant to the problem we are concerned with.”

So clearly for Sack, all regular governments, whether despotic or democratic, in one guise or another, can incur odious debts.
or debt made by a
dictatorial regime such as the New Order government in Indonesia," he said.

Also to be written off should be debt used to carry out projects that were
eventually damaged by natural disasters, that proved unusable because of
planning mistakes or that did not match the people`s needs.

According to KAU, Indonesia`s foreign debt now totaled 136.640 billion US
dollars and the country was paying an average of Rp90 trillion every year to
service the debt. (*)

Published by ANTARA News



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