RI becoming economically more dependent on foreigners<\/p>\n
By Rikza Abdullah<\/p>\n
Indonesia will have been politically independent for 56 years
\ntomorrow, but economically it has been getting more dependent on
\nforeigners.<\/p>\n
The dependence is so deep that it will be difficult for the
\ncountry to solve its own domestic problems without the
\ninvolvement of foreigners, particularly foreign creditors and
\ninvestors.<\/p>\n
JAKARTA (JP): The solution to the country's current economic
\nproblems, therefore, will largely depend on the resumption of
\nfinancial support from creditors like the International Monetary
\nFund (IMF), the World Bank-led Consultative Group on Indonesia
\n(CGI) and the Paris Club of creditors. If Indonesia can win their
\nsupport, it will be able to woo foreign investors. Such
\ndependence is a result of the early steps taken by its own
\ndecisionmakers.<\/p>\n
Since the fall of Indonesia's first president Sukarno, who
\npromoted self-reliance in his economic development plan, in 1967,
\nthe country has been increasingly dependent on foreign borrowing.<\/p>\n
In order to accelerate the economic development, the
\ngovernment, under the leadership of his successor Soeharto,
\ndecided to raise funds from foreign creditors and use them
\ncomplimentarily for its development spending. In the 1980s, the
\nprivate sector followed suit and raised offshore borrowing for
\ntheir business development.<\/p>\n
According to Bank Indonesia, the country's total outstanding
\nforeign debt was recorded at only US$2.43 billion as of 1969 and
\nsteadily increased to $8.44 billion in 1975, $14.87 billion in
\n1980, $35.15 billion ($28.31 billion owed by the government and
\nits companies and $6.83 billion owed by the private sector) in
\n1985, $63.95 billion ($49.35 billion and $14.59 billion
\nrespectively) in 1990 and $107.83 billion ($64.41 billion and
\n$43.42 billion respectively) in 1995.<\/p>\n
When the country was hit by the economic crisis in 1997, the
\nforeign debt surged to $136.08 billion ($57.86 billion and $78.22
\nbillion respectively) and rose to $150.88 billion ($71.46 billion
\nand $79.41 billion respectively) in 1998, before falling back to
\n$146.93 billion ($73.75 billion and $73.18 billion respectively)
\nthe following year.<\/p>\n
It is very difficult to imagine how and for how long Indonesia
\nwill be able to repay its foreign debt, which is more than triple
\nits annual gross domestic product (GDP). If the 1999 outstanding
\ndebt of $146.93 billion is converted into the local currency with
\nan exchange rate of Rp 9,000 per dollar, for example, it will
\namount to Rp 1,322.37 trillion, compared to the country's GDP,
\nwhich, according to the Central Bureau of Statistics (BPS), was
\nonly Rp 379.56 trillion that year.<\/p>\n
The increasing outstanding debts has increased the country's
\nannual debt repayments, which, in turn, has intensified the
\nnation's dependence on foreign sources -- it has to continue
\naccruing new loans and inviting foreign investments to keep its
\nbalance of payments at a convenient level every year.<\/p>\n
But when foreign investors, for whatever reasons, started to
\nrepatriate their investments in Indonesia in 1997, the country
\nsuffered a monetary crisis, which, in turn, caused it to become
\nmore dependent on foreign creditors. The government then invited
\nthe International Monetary fund (IMF) to help solve its monetary
\nproblems.<\/p>\n
The crisis is marked by, among others things, a sharp
\ndepreciation of the rupiah (from its 1997 value of Rp 2,400 per
\ndollar), an imbalance of payments, a sharp rise in consumer
\nprices, closure of or reduced production in companies, bankruptcy
\nof many commercial banks, loss of jobs and a higher number of
\npeople living under the poverty line.<\/p>\n
According to the Asian Development Bank (ADB), as quoted by
\nKompas daily, the net private investment outflow from Indonesia
\nreached $3.48 billion in 1997 and surged to $19.6 billion in 1998
\nbefore sliding to $11.29 billion in 1999. During the first six
\nmonths of 2000, the net private investment outflow reached $2.3
\nbillion.<\/p>\n
Foreign investors did make new commitments to invest in
\nIndonesia but the level of their implementation was very low.<\/p>\n
Chairman of the Investment Coordinating Board (BKPM) Theo F.
\nToemion said last month that foreign direct investment
\ncommitments approved by his office increased from $10.9 billion
\nin 1999 to $15.4 billion in 2000. During the first five months of
\nthis year, new commitments reached $4.6 billion. But he said the
\nlevel of their implementation was very low.<\/p>\n
Solution<\/p>\n
The country, since the start of the crisis, has been trying to
\nsolve its economic difficulties but inconsistent policies --
\ngenerally influenced by conflicts of interests -- have caused the
\nfailure of its efforts. During the Soeharto era, for example, the
\ngovernment decided to close or take over a number of insolvent
\nbanks and companies but banks and companies owned by cronies of
\nthe then president allegedly tried to evade the government's
\nmeasures. Soeharto himself allegedly also tried to evade
\nagreements made with the IMF by planning to introduce foreign
\nexchange control through a currency board system.<\/p>\n
Under the government of president Abdurrahman Wahid, a number
\nof points that were agreed with the IMF were not well
\nimplemented, thereby prompting the international lender to delay
\nthe disbursement of its next loan tranche since last December.<\/p>\n
The current government, under Megawati Soekarnoputri, has the
\nopportunity to solve the economic problems but it has yet to
\nformulate its strategy and policies.<\/p>\n
In formulating its strategy and policies on economic recovery,
\nthe government needs to cooperate closely with Bank Indonesia,
\nand their respective representatives need to synchronize
\npolicies.<\/p>\n
Officials of the central bank have repeatedly said that they
\nwould maintain a tight money policy, while newly appointed
\nCoordinating Minister for the Economy Dorodjatun Kuntjoro-Jakti
\nsaid last week the government would make job creation its
\npriority.<\/p>\n
With its tight money policy, aimed at curbing the country's
\ninflation, Bank Indonesia has been trying to control the growth
\nof its money supply by keeping interest rates on its SBI
\npromissory notes at high levels -- at slightly over 17 percent
\nper annum -- these past weeks. The tight money policy, according
\nto the central bank, is important as the recent sharp
\ndepreciation of the rupiah, the government subsidies as well as
\nsocial and political uncertainties have caused inflationary
\npressures.<\/p>\n
Although it was originally assumed that the GDP would grow by
\nbetween 4.5 percent and 5.5 percent and that the rupiah's value
\nwould fluctuate between Rp 7,750 and Rp 8,250 to the dollar, the
\ncentral bank has now projected the inflation rate at between 4
\npercent and 6 percent this year. However, since the rupiah
\ncontinued depreciating, the inflation rate reached 7.7 percent
\nduring the January-July period alone.<\/p>\n
The government, under its revised 2001 budget, has estimated
\nthe currency to average at Rp 9,800 to the dollar this year. But
\nin reality, the rupiah's value, which averaged at Rp 8,400 to the
\ndollar in 2000, fell to Rp 9,485 in January 2001, Rp 9,611 in
\nFebruary, Rp 10,213 in March, Rp 11,116 in April and Rp 11,285 in
\nMay.<\/p>\n
The rupiah's value continued hovering at above Rp 11,000 per
\ndollar in June and during the first three weeks of July. It
\nstrengthened to Rp 10,225 to the dollar on July 23 when the
\nPeople's Consultative Assembly (MPR), in its Special Session,
\nelected and swore in Megawati as the new president to replace
\nAbdurrahman Wahid, who, according to the Assembly, had violated
\nthe Constitution. The rupiah, since then, has continued
\nappreciating and its value surged to about Rp 8,500 against the
\ndollar earlier this week. The GDP, which increased by 0.85
\npercent in 1999 and by 4.77 percent in 2000, rose by 4.3 percent
\nin the fist quarter of 2001.<\/p>\n
Dorodjatun's plan to make job creation his top priority has
\nbeen welcome by many parties. Job creation is regarded as
\nimportant because about 5.87 million people (2.6 percent of the
\ncountry's population) are now unemployed and another 30.14
\nmillion (13.9 percent) are on disguised unemployment.<\/p>\n
But they warn that such a policy will demand strict discipline
\nin its implementation. Job creation, for example, demands for
\nconducive investment environments that include legal certainty,
\nsimple procedures for licensing, security for operation,
\nstability in foreign exchange rates and lower interest rates.<\/p>\n
The government, in promoting employment, also needs to
\naccelerate the restructuring of the banking industry so that
\ncommercial banks can expand their function of capital
\nintermediation.<\/p>\n
The government and the central bank will be able to accomplish
\ntheir policies if the IMF resumes its loan to Indonesia after the
\nsigning of the long-delayed letter of intent( LoI) with the
\ngovernment later this month or in early September. The signing of
\nthe LoI will be a ticket for the government to negotiate with the
\nParis Club of creditor nations in September for the restructuring
\nof part of its debt. As soon as the country recovers from the
\neconomic crisis, it should try to gradually reduce its dependence
\non foreigners for a steady development of its own economy.<\/p>",
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