An Indonesian bears $600 in debt

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.