Government urged to reduce foreign loan dependence

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)