Australia on Thursday said it was set to write off 75 million Australian dollars (58.7 million dollars, 42.3 million euros) in Indonesian commercial debt under an innovative scheme to promote public health.
It is the first time that commercial debt is being forgiven under a programme called Debt2Health, launched by the Global Fund to Fight AIDS, Tuberculosis and Malaria.
Instead of repaying the debt, Indonesia will invest half of the total in domestic schemes to combat TB, according to a press release issued jointly by Australia and the Global Fund at a meeting here.
"Indonesia is one of our closest neighbours, and it is a priority for us to support the efforts of the Indonesian authorities to fight tuberculosis," Australia's parliamentary secretary for overseas aid, Bob McMullan, said.
McMullan was in Paris for a meeting on health financing at the Organisation for Economic Cooperation and Development (OECD).
Debt2Health is similar to debt-for-nature swaps, in which rich countries write off a poor country's debt in exchange for commitments that money which is freed up will be spent on environmental protection.
Germany, the first country to join Debt2Health, has signed deals with Indonesia and Pakistan on foregoing repayment of state loans worth 50 million and 40 million euros (69 and 55.2 million dollars) respectively that were used for development aid.
Under Debt2Health, the Global Fund seeks out opportunities for converting debt and then brokers an arrangement between creditor and debtor countries.
"In order to reach and sustain the level of funding we need to succeed in the fight against the most deadly epidemics of our time, we must make use of innovative financing instruments," the Fund's executive director, Michel Kazatchkine, said.
Under the Australian-Indonesian deal, Indonesia will pay half of the outstanding debt to the Global Fund, which will administer the money through its established programmes, thus guaranteeing accountability and transparency, said Robert Filipp, the Fund's head of innovative financing.
The debt was owed to the Australian Export Credit Agency, a state organisation, but was used to secure a commercial transaction, which thus places it in the category of a commercial debt, he said.
France and Italy have also expressed interest in a Debt2Health deal, said Filipp.