Indonesia's foreign debt burden called critical<\/p>\n
JAKARTA (JP): Senior economist Sumitro Djojohadikusumo warned
\nyesterday that Indonesia's foreign debt, estimated at around
\nUS$100 billion, had reached a critical level with a 32 percent
\ndebt-service ratio against exports.<\/p>\n
Sumitro told reporters that serious efforts were needed to
\nreduce the debt-service ratio to at least 25 percent by the end
\nof the Sixth Five-Year Development Plan in 1999.<\/p>\n
\"This is a very worrisome condition and I have repeatedly
\nsounded this warning in the past,\" he said after opening an
\nannual meeting of civil servants' cooperatives.<\/p>\n
\"We have reached a red-light sign... which can only be
\nweathered if we raise more revenue from both the industrial and
\nservice sectors.\"<\/p>\n
He said a debt-service ratio of 32 percent meant that about a
\nthird of the country's revenue from exports would be used to pay
\nand service its foreign debt.<\/p>\n
\"So if our exports currently reach around $45 billion, about
\n$15 billion will be used to pay interest and debt principal.
\nDon't you think this is an alarming situation?\" he asked.<\/p>\n
He said that slower export growth compared to import growth
\nwould cause Indonesia's current account deficit, estimated at
\n$7.9 billion in 1996, to rise further.<\/p>\n
Since imports are expected to continue to rise because of
\nincreased demand for capital goods, Indonesia's current account
\ndeficit is expected to lie between $10 billion and $11 billion in
\n1999, he said.<\/p>\n
He estimated Indonesia's current account deficit was now as
\nlarge as 3.4 percent of gross domestic product, which is lower
\nthan Mexico's which reached 9 percent during its December 1994
\nfinancial crisis.<\/p>\n
\"But we still need to cut back on imports by controlling
\naggregate domestic demand and to increase exports by issuing more
\nderegulation measures for the real (production and distribution)
\nsector.<\/p>\n
\"The government must show a serious political will to cope
\nwith vested interests of both businessmen and bureaucrats,\" he
\nsaid in reference to hurdles facing further economic reform.<\/p>\n
Sumitro conceded imports should continue to rise because the
\ncountry still depended largely on imported capital goods and
\nvarious basic and intermediate industrial materials.<\/p>\n
\"The question is whether the rise will really be generated by
\nlarger imports of capital goods or by imports of consumptive
\ngoods.\"<\/p>\n
He questioned whether the government had the right economic
\npolicy priorities and whether they were properly implemented.<\/p>\n
Sumitro acknowledged that stability was needed to sustain
\nsound development: a dynamic stability, not one which aimed to
\nmaintain the status quo in favor of a small group.<\/p>\n
Transparency<\/p>\n
\"To have stability, you need consistency (in economic
\npolicies) and to maintain consistency, you must allow
\ntransparency.\"<\/p>\n
Transparency, he said, would allow people to judge whether a
\npolicy was implemented fairly and consistently for everyone, or
\nwhether it only favored a few.<\/p>\n
\"And I think this is what is lacking in the government policy-
\nmaking mechanism,\" he said.<\/p>\n
Responding to questions on Indonesia's access to concessional
\nforeign aid, Sumitro said the country's rapid development would
\nnot allow it to receive aid for much longer.<\/p>\n
To offset the expected decrease in foreign soft loans the
\ngovernment must mobilize more domestic savings or reduce the rate
\nof Indonesia's economic growth.<\/p>\n
The government is still capable of increasing domestic
\nsavings, especially if it boosts investment efficiency by
\nlowering the incremental capital output ratio, he said. (pwn)<\/p>\n
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