Tue, 20 Sep 2005

An Indonesian bears $600 in debt

Urip Hudiono, The Jakarta Post, Jakarta

The fact that one in five Indonesians still lives on less than US$1 a day is made even gloomier by the fact that every person in the country -- including those extremely poor and even newborn babies -- already has nearly Rp 6 million (US$600) in debt to shoulder.

Such a sad, but true reality was unveiled on Monday when Minister of Finance Jusuf Anwar told the House of Representatives' Commission XI for financial affairs that Indonesia's outstanding debt through this year's first quarter amounted to Rp 1.28 quadrillion (some US$128 billion), or 52 percent of the 220-million population's gross domestic product (GDP).

The debt stock consists of foreign debts worth Rp 624 trillion and Rp 658 trillion in domestic debts, coming mainly from foreign creditors in the form of loans and from the market through government bond issues, respectively.

Jusuf said the debt portfolio was also prone to several risks, including refinancing risks due to an imbalance in the maturation of the debts and market risks from fluctuations of the rupiah and interest rates.

"The government's long-term debt management goal is to minimize these risks," he said, mentioning such measures as buying back and extending the bonds, increasing the portion of bonds with fixed interest rates and only accepting soft loans with a maximum interest of 3.5 percent.

The finance ministry previously estimated that for every Rp 100 depreciation of the rupiah against the U.S. dollar, the government would have to bear an additional Rp 6 billion in interest payments, while every 1 percent increase in interest rates costs Rp 2.2 trillion.

State Minister for National Development Planning Sri Mulyani Indrawati, who also attended the hearing, however was upbeat that the government would be able to lower Indonesia's current debt as a percentage of GDP to 30 percent by 2009.

President Susilo Bambang Yudhoyono's administration is aiming to reduce the country's debt-to-GDP ratio to 43 percent next year, from 49 percent estimated for this year -- an improvement from a 75 percent debt ratio in 2001.

"We plan to do this by continuously reducing the budget deficit while boosting our economic growth, particularly through exports," she said.

Mulyani added that the government would limit its net bond issues to a maximum of 1 percent of the GDP and gradually reduce its foreign loans by between $1 billion and $2 billion every year.

In the future, the government will also prioritize negotiations only with major creditors, focusing on more flexible program loans, rather than fixed project loans.

Meanwhile, Bank Indonesia (BI) Senior Deputy Governor Miranda S. Gultom expected the government to issue its short-term treasury bills soon to replace the central bank's SBI promissory notes as a more effective money-market instrument.

BI has so far acquired Rp 10.4 trillion in bonds from the secondary market as part of its stock-building strategy to later use them -- apart from the SBI notes -- for its monetary operations.