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Debt swap initiative kicks off in Indonesia

28 June 2008

Debt2Health Will Increase Domestic Spending on Health by €25 million

Jakarta, 23 June 2008, Dr. Rahmat Waluyanto, Director General of Debt Management, Ministry of Finance Republic Indonesia, Ambassador Baron Paul von Maltzahn, Embassy of the Federal Republic of Germany in Indonesia, and Robert Filipp, Head of Innovative Financing of the Global Fund to Fight AIDS, Tuberculosis and Malaria announced the start of “Debt2Health” in Indonesia today.

Debt2Health is a new financing instrument which helps increase domestic spending on health in Indonesia by €25 million. Debt2Health functions similar to a debt swap: Germany has agreed to cancel €50 million of Indonesian debt while the latter has agreed to invest half of that amount in public health programs in Indonesia supported by the Global Fund.

“We are delighted to be piloting this new instrument with our partners from Germany and the Global Fund. The Debt2Health initiative allows us to turn debt into new resources for health in Indonesia,” said Dr. Rahmat Waluyanto, Director General of Debt Management, Ministry of Finance-RI. “We hope other creditor countries will join this initiative and offer Debt2Health agreements to Indonesia and other countries struggling with high disease burden and high levels of debt service.”

HIV/AIDS, tuberculosis and malaria remain public health threats in Indonesia, with approximately 170,000 people living with HIV. Indonesia is the country with the highest burden of tuberculosis in South East Asia with 150,000 people dying of tuberculosis every year. Close to 100 million Indonesians also live in areas susceptible to malaria. To date, the Global Fund has approved funding for six programs fighting HIV/AIDS, tuberculosis and malaria worth almost US$ 200 million. Of this amount, approximately US$108 million has already been disbursed to the country.

Germany was the first creditor country to offer Indonesia debt swap arrangements thereby facilitating a substantial reduction of the debt burden on Indonesian society. Six debt swap agreements between the Government of Indonesia and the Federal Republic of Germany have so far been implemented with a total sum of €143.56 million, including Debt2Health.

"Debt2Health is a win-win situation for Indonesia, Germany and the Global Fund: Indonesia gets more investments in health, the Global Fund increases predictability for its work and Germany contributes its share to the global fight against AIDS, tuberculosis and malaria,” said Baron Paul von Maltzahn, the Ambassador of Germany. “I am proud that Indonesia and Germany are pioneers in this new initiative which testifies to the good relations between our countries."

“Debt2Health goes beyond traditional financing for development,” said Dr Michel Kazatchkine, Executive Director of the Global Fund. “It combines the well know instrument of debt swaps with the tested and proven disbursement mechanisms of the Global Fund to deliver high quality health care and prevention to people in need through programmes fully owned by Indonesia.”

The idea behind Debt2Health is to apply the well-established instrument of debt swaps to financing public health programs using the performance-based systems of the Global Fund. Debt2Health invites creditors to write off a portion of the debt owed them on the condition that the beneficiary countries invest an agreed-upon amount in local programs approved by the Global Fund. Debt conversion enables poor countries to devote more of their own resources to fighting HIV/AIDS, TB, and malaria, including essential health systems strengthening.

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