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)