Debt-relief campaigners have been looking at the instrument of debt exchanges with some mistrust. The reason behind this distrust is the very real danger that exchanges may be used to legitimise or even launder claims that have been found to be illegitimate and should therefore be cancelled without any further consideration of their sustainability or alternative uses.

The proposition that illegitimate debt should not be eligible for a debt-for-development exchange is clear-cut and has a lot of common sense on its side, yet this chapter analyses it from the perspective of a debt-relief campaign that has been arguing for the cancellation of a clearly illegitimate debt. The case is about a (remaining) debt of some €200 million owed by Indonesia to Germany for the sale and refurbishment of 39 warships of the former German Democratic Republic navy between 1992 and 2003.

WARSHIPS FOR INDONESIA, 1992–2004

In 1993 a large section of the navy of the former German Democratic Republic (GDR) was sold to Indonesia. In total, 39 corvettes, minesweepers, troop supply ships and landing crafts were sold for 20 million deutsche marks (DM) (€10 million/US$13 million), slightly more than their scrap value. Due to the bad condition of the vessels, the German government felt it was appropriate to also sell the modernisation of the vessels by German companies as well as the restoration of relevant navy infrastructure in Indonesia as part of the package. The restoration in Germany alone cost almost DM 475 million (€243 million/US$316 million).