Government may use only 85% of $4.7b in loans

JAKARTA (JP): Finance Minister Bambang Sudibyo said on Wednesday that the government would use only up to US$4 billion of the $4.7 billion in loans pledged earlier this month by the country's major donors amid heightened concern among legislators over foreign assistance and the already high debt level.

Bambang said that actual utilization of the loans might even be less than $4 billion if the international oil price remained high.

"Out of the $4.7 billion pledged, the budget might only need $4 billion," he told the House of Representatives Commission IX on state budget and banking during a debate over House approval of the foreign loans.

Bambang assured legislators that the government wouldn't have to use all the foreign loans pledged for the April-December, 2000 budget to cover part of the fiscal deficit, estimated at 4.9 percent of gross domestic product.

He pointed out that the deficit in the current 1999/2000 state budget ending in March was estimated at only 3.8 percent of GDP compared to the earlier projection of 6.8 percent of GDP.

"So, even for the current fiscal year, that's only half (of the loans)," Bambang said, referring to the $5.9 billion loans pledged by the major donors last year.

The country's major donors grouped in the Consultative Group on Indonesia (CGI) pledged earlier this month to provide some $4.7 billion in grants and loans to help finance the budget deficit during the upcoming nine month transitional state budget. But part of the loan commitment was carried over from the $5.9 billion loan pledged last July.

Indonesia will start using a calendar year budget in January, 2001.

After a two-hour intense debate, the House finally gave its approval for $4.4 billion of the CGI loans.

"The government said that it only needs $4 billion, but for safety reason we agree on $4.4 billion," said head of the House Commission IX Sukowalujo Mintohardjo.

Sukowalujo said earlier on Tuesday that the government had agreed to revise upward its key 2000 state budget assumptions including oil export price, asset sales, and tax revenue targets to reduce the budget deficit.

He said that the government had agreed to hike the oil price assumption to $20 per barrel from $18 per barrel, the target of privatization proceeds to Rp 6.5 trillion ($928.57 million) from Rp 5.9 trillion and the target of revenues from asset sales by ass Indonesian Bank Restructuring Agency (IBRA) to Rp 18.9 trillion from Rp 16.25 trillion.

The House is scheduled to approve the state budget on Feb.29.

Several legislators earlier strongly opposed the use of the CGI loans, citing fears that foreign countries would have a stronger leverage to intervene into Indonesia's domestic affairs.

The House members also expressed great concern over the country's already high debt level and the relatively high interest rate on CGI loans, notably those from multilateral donors.

"We're concerned that the grants would become a means for foreign governments to intervene in our domestic affairs," said legislator Paskah Suzetta.

Some $520 million of the $4.7 billion CGI loans were pledged in the form of grants that don't need to be repaid. The grants are to be used mostly for fighting corruption and improving democracy.

Legislator Theo F. Toemion said that the 6 percent to 7 percent interest rate on the CGI loans were too expensive for the country currently suffering from its worst economic crisis in a generation.

Bambang said that CGI loans were soft loans with a 30-year payment period.

But he added that the relatively high interest rate was a reflection of Indonesia's high country risk.

"Our country risk has increased, particularly after we announced that we're seeking a debt rescheduling," he said.

He said that the government would seek to reschedule around $2.1 billion in sovereign debt this year through the Paris Club of creditor nations, of which $1.6 billion would be rescheduled by Japan.

He said that as of November 1999, official foreign debts totaled $62.87 billion.

Bambang also said that the government was committed to gradually reducing the country's dependence on foreign loans so that by 2002 the amount of new loan disbursement would be smaller than the amount of debt servicing and installment.

But he said that it's impossible for the government to drastically reduce new borrowings because it would mean cutting budget spending sharply or setting very high targets for tax and asset sales revenues.

"If we set the targets too high, the budget will not be credible.

"If we slash spending to curb deficit, the economy won't grow. That's why we still need the foreign loans," Bambang added.(rei)