'Current account deficit manageable'
'Current account deficit manageable'
JAKARTA (JP): Bank Indonesia Governor J. Soedradjad Djiwandono
said the widening current account deficit would be manageable,
with capital inflows remaining strong in the years to come.
He said the government was tackling the widening current
account deficit two ways, by reducing the size of the deficit and
attracting more capital inflows.
To reduce the deficit, Soedradjad said, the government had
taken steps to boost non-oil exports, to curb imports and to
reduce the services account deficit, the main cause of the
current account deficit.
The government was maintaining sound economic fundamentals so
that capital inflows would remain high to cover the widening
deficit.
"We, therefore, should not be too worried about the widening
current account deficit. We are optimistic that we can still
manage it without endangering our foreign exchange reserves,"
Soedradjad told reporters on Sunday night.
President Soeharto told a House of Representatives' plenary
session yesterday that the country's current account deficit
would grow to US$8.8 billion this fiscal year from $7 billion
last fiscal year.
He projected the deficit would expand further to $9.8 billion
next fiscal year, or 4 percent of the country's gross domestic
product.
Soedradjad said the current account deficit would be financed
by the capital account surplus.
Net capital inflows would reach $10.8 billion this fiscal
year, higher than the current account deficit of $8.8 billion,
hence there would be a $2.6 billion surplus on the balance of
payments.
He said that net capital inflows would reach $10.9 billion
next year, higher than the expected current account deficit of
$9.8 billion. The balance of payments would have a $1.4 billion
surplus.
"Therefore, our balance of payments would still have a surplus
of over $2 billion this fiscal year and $1.45 billion next fiscal
year," Soedradjad said.
The governor projected the government's foreign exchange
reserves, held by the central bank, would reach $19.1 billion
this fiscal year and just over $20 billion next fiscal year --
enough for 4.7 months of imports.
Soedradjad dismissed the suggestion that most capital inflows
to Indonesia were short-term: Only 5 percent of all inflows had
maturities below one year; 26 percent had maturities between one
year and three years; and 69 percent had maturities above three
years.
But he acknowledged that the current account deficit, at 4
percent of gross domestic product, had reached an alarming level
considering that Indonesia had over $100 billion worth of foreign
debt.
Minister of Finance Mar'ie Muhammad said the government would
continue to amortize its remaining high-interest foreign debt
ahead of schedule to reduce its debt-servicing burden.
The government had repaid $2.6 billion of its high-interest
debt early in the last three fiscal years, and was in the process
of repaying another $750 million early, he said.
As the result of early debt repayments, the government's debt
service ratio -- the ratio of the government's debt servicing
obligation to the country's export revenues -- would drop from
16.4 percent last fiscal year to 14.1 percent this fiscal year
and 11.8 percent next fiscal year.
But the private sector's debt service ratio was projected to
increase from 14.8 percent last year to 15.5 percent this year
and 17.8 percent next year.
The debt service ratio of state enterprises would increase
from 1.4 percent last year to 2.1 percent this year and decline
again to 1.6 percent next year.
Indonesia's overall debt service ratio would decrease from
32.6 percent last fiscal year to 31.7 percent this year and 31.2
percent next year.
"We should not worry about the increase in the private
sector's debt service ratio because it represents the increasing
role of the private sector in our economy," Mar'ie said. (rid)