'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)