Government urged to reduce foreign loan dependence

JAKARTA (JP): Observers of the economy advised the government yesterday to intensify promotion to attract foreign portfolio and direct investments to reduce Indonesia's dependence on foreign loans.

Dorodjatun Kuntjoro-Jakti, the dean of the University of Indonesia's School of Economics, told reporters here yesterday that the government must also carefully select which economic fields should be supported by foreign investments, prioritizing those which help boost the country's exports.

"The main question now is how to invite as much capital inflow as possible," he commented at a seminar on Indonesia's foreign debts.

"The more we focus on foreign debt, the more dependent we will feel," he added.

The seminar, held jointly by the Bank of Tokyo and the Foundation for the Development of Human Resources in Indonesia, presented the undergraduate theses of Bambang Tri Harnoko, Sapto Widjatmiko and Niniek L. Gyat, who received scholarships from the Bank of Tokyo to conduct research in the fields of economy.

Harnoko's thesis study, conducted between 1971 and 1992, discovered that the increase in the government's outstanding external debts had a negative effect on the country's economic growth.

He suggested that reorientation of foreign loan funded projects was needed to adjust that trend.

Dorodjatun, who is also a member of the foundation, said that Indonesia's debt service ratio, which currently reaches 32 percent, should be reduced.

"One of the rules of thumb for a healthy economy in a given country is that its debt-service ratio (the ratio between debt servicing and export revenues) should not exceed 25 percent of its imports," he said.

"The problem we are facing is that the amount of the government's payments for debt interest and debt principal exceeds the inflow of foreign aid," Dorodjatun said.

In his thesis, Harnoko wrote that since 1985, the government's net transfer has shown negative figures. In 1985, the net transfer of the government's debt was minus $434 million, which increased to minus $1.89 billion in 1990, before dropping to minus $582 million in 1991, but rising back to minus $1.15 billion in 1992.

Dorodjatun pointed out that it is time the government focused direct investments on more value added products, as it would be difficult to continue relying on resource intensive products such as garments and plywood.

"We should improve efforts to attract investments in the electronics industry," he said.

However, he pointed out that even though infrastructure at industrial estates could accommodate new investments, "there seems to be problems with red tape and long, drawn out licensing procedures, which put off prospective investors".

Dorodjatun pointed out that the amount of investments encouraged by the deregulation measures introduced in the 1980's had already reached a level of saturation. (pwn)