Government sees foreign debt dropping

Government sees foreign debt dropping

JAKARTA (JP): Finance minister Prijadi Praptosuhardjo said on
Monday the ratio of the government's total foreign debt to gross
domestic product (GDP) was projected to drop to 65 percent in
2003 from the current 99 percent level.

Prijadi said the government would gradually lower the amount
of foreign debt by paying up the loan as scheduled as the
economic condition improves.

"The efforts show the government's determination in
controlling and reducing the foreign debt burden in a sustainable
way," he told the House of Representatives' plenary session on
the 2001 draft state budget.

Prijadi said the debt ratio in 2001 was projected to decline
to 86 percent.

Analysts have warned that the reduction of the government's
massive debt is crucial to avoid the country plunging into a
second crisis.

A failure to reduce the debt burden by 2003 would create a
disaster to the state budget because during that year part of the
debt owed to the International Monetary Fund (IMF) and the
government bank recapitalization bonds would start to mature.

Economists estimated the burden of the 2003 state budget from
the maturing bonds and the IMF loan alone could reach a whopping
Rp 130 trillion.

The government has issued more than Rp 400 trillion worth of
bonds to help finance the recapitalization of the country's
banks.

Experts also said the country would not likely get another
debt rescheduling facility for debts maturing in 2003 from the
Paris Club of creditor nations due to the higher trend in
international oil prices.

Prijadi said to lower the amount of foreign loans, the ratio
of the annual foreign loan disbursement to GDP would be lowered
from 3 percent in 2000 to 2.6 percent in 2001 and 1.6 percent in
2003.

Donors grouped in the Consultative Group on Indonesia (CGI)
approved last week to provide the country with some $4.8 billion
in loan to help plug the 2001 budget deficit estimated at around
$6 billion or an equivalent of 3.7 percent of GDP.

The government hailed the CGI loan commitment but some
analysts and legislators warned the loan would only create more
burden to the budget particularly if its conditions were similar
to commercial loans.

Elsewhere, Prijadi said the government would not revise its
assumptions in the 2001 draft budget as recommended by some
legislators.

He said the assumptions were the result of previous
consultations with the House budget committee and already reflect
the real condition of the economy.

"The government thinks the assumptions are realistic and in
line with efforts to create a conducive climate for the
sustainable recovery of the economy," Prijadi said.

The government assumes an economic growth of 4.5 percent,
inflation rate of 7 percent, exchange rate of Rp 7,300 per U.S.
dollar, international oil price at $22 per barrel and interest
rate of Bank Indonesia SBI promissory notes at 11 percent.

Legislators have recently criticized the budget assumptions,
particularly the exchange rate level and oil price assumption.

Critics said the exchange rate assumption of Rp 7,300 was too
optimistic given the fact that the rate was now hovering near the
Rp 9,000 level and the unstable domestic social and political
conditions.

The oil price assumption had been seen as too conservative
since the current oil price level was already at more than $29
per barrel.

"According to Bank Indonesia, an exchange rate of Rp 8,625 per
U.S. dollar at the end of September 2000 was still
undervalued ... Compared to 1996, the September 2000 rate level
had depreciated by around 40 percent ... So there's enough room
for the rupiah to appreciate to the Rp 7,300 level," Prijadi
said.

But he admitted that domestic political stability was a
crucial factor.

The government proposed the draft budget earlier this month
and the House is expected to approve it sometime in
November.(rei)