BI calm about yen surge

BI calm about yen surge

JAKARTA (JP): Bank Indonesia Governor J. Soedradjad Djiwandono said yesterday that the yen's surge would not have an adverse impact on the Indonesian economy, even though nearly 40 percent of the country's external debts is denominated in the Japanese currency.

"The government has acknowledged several times that any increase in the yen rate will have a potentially negative effect on the country's outstanding debts. But the real impact is not as big as feared by some analysts," the central bank's governor told a press briefing.

Soedradjad said that the surge in the value of the yen or any other major currency could theoretically affect the country's foreign loans. The real impact of the appreciation on the debt service burden, however, depends on the rates effective during the repayment period.

"From that standpoint, the people should not have been shocked by the yen's appreciation over the last few days. The real impact will be felt only during the loan repayment period," he said.

Soedradjad cautioned that simply calculating the impact of the yen's surge into the total value of the country's loans is not accurate since the rate of the yen is constantly fluctuating.

"Moreover," he stressed, "the loan repayment of the foreign debts is made on a year-to-year basis."

The dollar tumbled below the psychologically important 90-yen level to its post-war low of 89.65 yen and 1.3690 marks in Tokyo Wednesday before climbing back to 90 and 91 in the last two days.

Soedradjad admitted that the yen's surge had fueled a dollar rush in the local money market mid-week as fund managers and other speculators tried to benefit from the uncertainty. "The central bank was forced to intervene into the market by selling the dollar to stabilize the rupiah," he added.

On Wednesday several speculators dumped their rupiah and bought the greenback on worries that the yen's surge might hurt the Indonesian economy.

Earlier in January, the local money market was also feeling the pressure as fund managers dumped their rupiah in the wake of the Mexican financial crisis. Speculators feared that a similar crisis would also take place in Indonesia.

The central bank governor blamed the fresh dollar rush on the speculative trading of foreign fund managers.

"The people seemed shocked. It was as if the surge in the yen's value was the end of the day. It's not right," he said of the people's jitters.

Besides, he added, most of the country's external debts are based on long-term contracts and their service and installment payments are made on an annual basis.

"So there is no reason to worry about the appreciation of yen. In fact, it is now stabilizing," he said.

According to the central bank governor, any analysis should be based on the government's ability to service and install its debts this year.

"From this standpoint, the position of our foreign reserves are safe, more than enough to cover five months of imports," he added.

Soedradjad said that around 35 percent of the US$12.97 billion foreign reserves held by the central bank is kept in Japanese yen accounts.

The proportion of yen holdings in the total international reserves is comfortable enough to service and install the yen- denominated debts," he said.

Soedradjad added that the percentage of yen in the reserves would be increased to anticipate a future surge in the yen.

Minister of Finance Mar'ie Muhammad announced recently that the country's outstanding debts totaled $87.6 billion as of last December, of which $58.6 billion were owed by the government, $24 billion by private borrowers and $5 billion by state companies.

The government allocated around Rp 17.65 trillion ($8.2 billion) of the 1994-1995 state budget for debt servicing and installments and another Rp 17.89 trillion ($8.32 billion) from the 1995-1996 budget.

Debt servicing and installments account for around 23 percent of the Rp 78.02 trillion in spending projected in the next fiscal year, which begins next month. (hen)