Oct 01, 2023 Last Updated 8:24 AM, Sep 13, 2023

Dirty debt

Ann Pettifor

On a wet London afternoon in October 2001, a small delegation of campaigners from Indonesia, Britain and Germany made their way to the British Treasury to meet the British Chancellor's deputy, Mr Paul Boateng. The purpose of the meeting was to pressure the British government to cancel military debts owed by Indonesia to Britain.

The delegation's eyes were on April 2002, when Indonesian representatives will meet the cartel of international creditors known as the Paris Club, which gathers in the French Treasury. Britain will be at the table with other powerful creditors, including Japan, the US and Germany. million of Indonesia's debt to Britain - a total of more than billion - consists of loans made by the British government and companies to a government the British had publicly criticised, but privately financed and armed - the Suharto government. The military debt is perhaps the most offensive part of this bigger problem.

Inside the formal setting of the British Treasury, Binny Buchori of the Indonesian NGO Forum on Indonesia Development (Infid) made a passionate appeal for the cancellation of Indonesia's debt, particularly the military component. 'This debt is being paid by millions of ordinary Indonesians', she said. 'Many of them are very poor, and most of them ignorant that Suharto's government has left each person - whether they be mothers, fathers, grandparents, their children and grandchildren - with a very heavy burden of public debt. These people are each sacrificing their basic human rights to a decent standard of living, so that Indonesia's public debt of US$ 152 billion can be repaid.'

Sugeng Bahagijo, also of Infid, added: 'Already the Indonesian government spends much, much more on paying foreign creditors than it spends on clean water, health, housing and education for its own people. The government is forced by the International Monetary Fund (IMF) to prioritise repayment to rich countries and banks over payments for schools, health and a better environment for the people of Indonesia.'

The British delegates at the meeting argued that ordinary people in Britain had not agreed that their taxes should be used to guarantee loans for military exports to Suharto's regime. 'It was British Scorpion tanks that attacked students and protesters who stood up to Suharto in 1998. It was British Hawk jets that were used in East Timor,' said the British delegate.

'British people were not consulted about those loans, that were made in their name, and with their taxes. Instead the loans were made to Suharto in secret. We are now, as part of the Jubilee movement, calling on the British government to cancel those odious debts.'

This meeting, which did not make the media headlines, is but one example of the way in which campaigners from north and south are working together, under the banner of Jubilee Movement International, to challenge an international financial system designed to profit those with money - creditors, speculators and bankers. A system which extracts and transfers resources from south to north. A system which goes by the name of 'globalisation' and which prioritises money rights over human rights.

The poor of Indonesia, like the poor of many countries, are the victims of this system. Some 160 million Indonesians, 70% of them in rural areas, live below the international poverty line of US$2 a day. The World Bank estimates that between 1997 and 1998 the real wages of agricultural workers fell by as much as 40%, and those in urban areas fell by 34%. Since 1997, it is said, 39 million Indonesians have lost their jobs.

Government funds that should be used to help re-build economic stability in Indonesia, and support the poor, are instead being used to repay foreign creditors. Before 1997, 40% of the government's budget was spent on human development. Since 1997 that spending has been cut by a third. Today, domestic and external debt service expenditure uses up 41% of the budget, and 61% of tax revenues.

The IMF has played a key role in increasing Indonesia's foreign and domestic indebtedness. The institution is dominated by rich country OECD governments, like the US, the UK and Japan, who are its biggest shareholders. Most IMF policies are designed to promote their interests, and the interests of investors, creditors and speculators based in those countries. The IMF also acts as the gatekeeper for access to international finance and capital. So for Indonesia to be able to borrow on the international capital markets, or indeed for Indonesia to be able to obtain aid from OECD countries, it must first gain the approval of the IMF.


The IMF itself has acknowledged it made a mistake when a small IMF staff team, after just two weeks in Jakarta, forced the Bank of Indonesia to close sixteen banks on 1 November 1997. The cost of that blunder is the larger part of Indonesia's huge domestic debt burden of $80 billion. Before this debacle in 1997, Indonesia did not have a significant domestic debt burden.

We in Jubilee 2000 have a healthy respect for the market and agree that in some areas of the economy the market responds more democratically to consumer demands than say, state-backed companies.

The IMF should take full responsibility for its error, and compensate the people of Indonesia for the full amount of the liabilities incurred through the banking debacle, by paying off the domestic debt that resulted from their blunder. The purpose of such compensation must be twofold: first to compensate and support the poor of Indonesia, and second to prevent future perverse errors by the IMF.

IMF policies to increase taxes on fuel are a classic example of 'one-size-fits-all' policy errors which do not respond to, nor are accountable to market or indeed democratic forces. But the rise in fuel prices is also a device by the IMF to quickly raise funds for the Indonesian budget. These funds in turn are used to prioritise debt repayments to domestic and foreign creditors.

There is no doubt that this policy could destabilise the government of Indonesia, and result in the defeat of democracy. Former President Wahid's government understood this well, and proposed an alternative to the sudden removal of fuel subsidies. The elected cabinet wanted to introduce taxes on the rich, conscious that very few Indonesians pay taxes. IMF staff resisted, arguing that Indonesia needs a 'quick fix' to raise funds for the budget, and that these funds are better raised through removing subsidies on fuel.

The Minister of Finance, Mr Ramli, defied the IMF by asserting, informally and in public, that he intended to round up non-taxpayers. The effect of his announcement was that 600,000 Indonesians immediately signed up to pay their taxes. The government was confident that with more stringent sanctions far more tax avoiders could be persuaded to pay, and much more money could be raised. However, when a country is indebted, the diktats of unelected IMF officials (representing foreign creditors) take precedence over the democratic decisions of Indonesian politicians

Because of the secrecy that surrounds IMF/ World Bank and Indonesian government negotiations, ordinary Indonesians are ignorant of what is being done in their name, and of the high costs associated with the economic policies imposed by foreign creditors. Indonesia's foreign and domestic debts remain, effectively, a state secret. Only when debate is opened up around the debt, and only when both the borrower (the Indonesian government) and the lenders are open and accountable for the public debts they incur, can we hope to introduce some discipline into the system, and control the spiralling rate of indebtedness.

Only when money rights are once again subordinated to human rights, can we hope for peace, justice and an end to poverty in Indonesia.

Ann Pettifor (apettifor.jubilee@neweconomics.org) is Programme Coordinator with Jubilee Plus (www.jubileeplus.org) at the New Economics Foundation.

Inside Indonesia 69: Jan - Mar 2002

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