RI pursuing debt-swap mechanism

Indonesia has paid 3 million euro (US$7.76 million) to Germany, the first installment for a debt swap program worth 25 million euro to combat AIDS, tuberculosis (TB) and malaria, a ministry official says. With the debt-to-health program, Germany has cut Indonesia's debt payments this year by half from 50 million euro to 25 million euro on the condition that the difference be used to finance health programs.

Indonesia will disperse the amount over a five-year period from 2008 to 2012 via international non-government organization The Global Fund. "It allows us to turn debt into new resources for health in Indonesia. Besides Germany, we have a debt swap agreement with Italy to finance reconstruction in Aceh," Finance Ministry's director general of debt management Rahmat Waluyanto said Monday. Italy has agreed to disburse $24.2 million and 5.7 million euro to finance several infrastructure, health and education projects in Aceh, he said.

Rahmat said Indonesia would also discuss a debt swap scheme with the U.S. to cut $19.6 million of Indonesia's debt, in exchange for forestry programs. Germany has so far eliminated 143.56 million euro of Indonesia's debt through six debt swap agreements.

Robert Filipp, The Global Fund's head of innovative financing, said the organization had invested nearly $200 million in Indonesia to help improve the country's health system. Filipp also said the organization was looking for other country donors, other than Germany, citing Australia as an example. According to The Global Fund, Indonesia has 11,868 AIDS cases, more than 600,000 TB patients and almost half of the country's population is prone to malaria.

Despite the benefit Indonesia received through the debt swap program, Rahmat said the amount of debt reduction through debt swap programs was relatively small -- $275 million -- compared to the country's bilateral debts of Rp 550 trillion ($59.14 billion). He cited as an example Indonesia's debt to Germany, which reached $3.9 billion as of May, while the debt swaps only amounted to $220 million. This year, Indonesia plans to pay Rp 48.14 trillion in foreign debts.

source: Jakarta Post | 24 June 2008