Budget pre-empted yen surge

Budget pre-empted yen surge

JAKARTA (JP): President Soeharto said yesterday that the yen's
surge against the U.S. dollar was no cause for panic because the
Japanese currency's sharp rise had been anticipated.

"The government already had policies anticipating the impact
of the yen's rapid appreciation and we were well prepared," the
President was quoted by Minister/State Secretary Moerdiono as
saying.

Moerdiono said that the sharp fall of the U.S. dollar against
the yen had received special attention from the President.

The U.S. dollar slid further on Asian markets yesterday,
hitting a record post-war low of 88.65 yen in Tokyo morning
trading. But intervention by the Bank of Japan helped the dollar
regain its footing at 89.50 yen later in the day.

Moerdiono said that the President was unlikely to take new
measures to ease the impact of the rapid increase in the yen's
value against the American currency, because the government's
1995-1996 budget, which becomes effective next month, had been
drafted with a view to containing the impact of the yen surge.

"Economic ministers had been alerted about the yen surge while
they were preparing the 1995-1996 state budget," he said.

Indonesia's outstanding debts totaled $87.6 billion as of last
December, with $58.6 billion owed by the government, $24 billion
by private borrowers and $5 billion by state-owned companies.

Meanwhile, Minister of Finance Mar'ie Muhammad acknowledged in
a hearing with the House of Representatives yesterday that it
would be difficult for the government to reduce borrowing from
Japan.

"The problem is where to find a new donor with a lending
capacity like that of Japan," he told the House's Budgetary
Commission.

Around 40 percent of the government's external debts,
channeled through the World Bank-chaired Consultative Group on
Indonesia, are denominated in yen, with annual interest rates of
between two-and-a-half and three percent.

Measures

Mar'ie said that the government had taken a number of
realistic measures to minimize the impact of the yen surge,
notwithstanding that the rapid appreciation of the Japanese
currency was beyond "anybody's control."

"We are not just praying but also making some realistic
efforts," he said of the government's response to the surging
yen.

One of the most important measures, the minister said, was to
adjust the basket of currencies in the country's foreign
reserves.

He said that the portion of the Japanese yen in the foreign
exchange reserves, which totaled around $13 billion as of last
month, would, for example, be expanded from the present level of
35 percent.

The government also will try to lobby such multilateral
agencies as the World Bank and the Asian Development Bank, which
in the past sometimes extended their credits partly in yen, to
denominate all their loans in the U.S. dollar, the minister said.

Another strategy, the minister said, was the encouragement of
local companies to make the most of the positive aspects of the
yen's surge, such as the increase in the competitiveness of
Indonesian exports.

"We should also do our best to benefit from the relocation of
Japanese industries, which is expected to accelerate as a result
of the surging yen," the minister added.

In a related development, Governor of Bank Indonesia (the
central bank) J. Soedradjad Djiwandono told newsmen yesterday
that about 35 percent of Indonesia's US$13 billion international
reserves was held in yen.

"That is significantly larger than the 27 percent proportion
last year," Soedradjad told newsmen after addressing the luncheon
session of the Economist Conferences' Roundtable with the
Indonesian Government at the Grand Hyatt Hotel here.

He hinted that the yen's proportion in Indonesia's
international reserves would continue to be increased.

"But obviously, we will not make such a move when the yen is
strengthening as it is now," he said.

Soedradjad said last week that the impact of the yen's surge
on the Indonesian economy, notably its foreign debt service
burdens, was only temporary.

He conceded that the surges in the value of the yen or other
major currencies theoretically affected the country's foreign
debt burdens.

"But the real impact of such appreciation on the country's
debt service burden depends on the effective rates during the
repayment period," Soedradjad added. (hen/vin)