Govt debt ratio target unrealistic: CSIS

Govt debt ratio target unrealistic: CSIS

The Jakarta Post, Jakarta

Government plans to cut its debt level to around 60 percent of
gross domestic product (GDP) by 2004 is an unrealistic target,
the Center for Strategic and International Studies (CSIS) say.

The prestigious private think tank said that achieving the
target required an average economic growth of 6 percent per year
and a relatively low inflation level of also around 6 percent.

CSIS economist Tubagus Feridhanusetyawan said on Thursday that
under the current conditions, the required growth and inflation
rate were very unlikely.

"In a realistic scenario, the government would be able to
lower the (debt) ratio to 70 percent only by 2010," Tubagus told
a seminar on the debt problem.

Tubagus was presenting a paper prepared with fellow CSIS
senior economist Mari Pangestu.

He added that their paper was based on assumptions of economic
growth of 3.5 percent and a moderate inflation rate of 10
percent.

Coordinating Minister for Economy Dorodjatun Kuntjoro-Jakti
said earlier that the government aimed to lower the debt-to-GDP
ratio to 60 percent by 2004, which is the end of President
Megawati's current tenure.

The move was part of efforts to reduce the massive burden the
debts place on the state budget.

This year alone, the state budget has to allocate Rp 136.19
trillion for debt repayment. That accounts for some 40 percent of
state expenditure.

The latest data shows that the country's total debt to
December this year would likely remain at US$129.7 billion, or
more than 80 percent of this year's estimated $160 billion GDP.

GDP measures total value of goods and services produced in a
year.

Of the total public debt, some $60 billion came from domestic
debts, consisting of government bonds injected into local banks
during the financial crisis.

In the seminar, it was unanimously agreed that such budgetary
constrains had limited the budget's allocation for crucial
spending, which could have generated higher economic growth.

Both Tubagus and Mari suggested the government and Bank
Indonesia develop a comprehensive and integrated debt management
team to deal with both external and domestic debts.

For overseas debts, efforts to negotiate debt-rescheduling
programs with international creditors such as the Paris Club of
creditor nations should carry on.

The government is scheduled to meet with the Paris Club in
April to reschedule maturing debt repayments.

On the domestic front, while speeding up assets sales and
privatization programs remains necessary, creating a mechanism
for bond refinancing will also be crucial.

The government and the House are currently debating new draft
laws on bonds which will provide the legal basis for the
government to refinance some Rp 3.9 trillion worth of bonds
maturing this July.

Refinancing old maturing bonds means issuing new bonds to
cover the payment.

IMF's senior representative for Indonesia David Nellor, who
was also present at the seminar, said that economic growth was
the key to breaking the debt cycle.

Nellor said that the debt-to-GDP ratio of 60 percent could be
achieved within around five years, if the country managed to
reach an average economic growth of 5-6 percent.

The official target of this year's growth stands at four
percent compared to 3.5 percent last year.