Govt to curb foreign loans

Govt to curb foreign loans

JAKARTA (JP): Minister of Finance Mar'ie Muhammad told the private sector yesterday it must curb the inflow of offshore borrowing because the government is considering revising the existing ceiling for foreign loans.

"As a member of the monetary authority, I am sternly stating that the private sector must improve the management of their foreign loans and refrain as much as possible from excessive amounts of borrowing in order not to put the country's economy at high risk," Mar'ie told members of the Indonesian Chamber of Commerce and Industry here yesterday.

The Chamber's members met with more than a dozen ministers led by Coordinating Minister for Economy and Finance Saleh Afiff in a briefing on the government's draft budget yesterday.

The draft budget was proposed earlier yesterday by President Soeharto before a plenary session of the House of Representatives.

Mar'ie said that the government needs the involvement of the private sector to advance the country's development. "But, it is our main job to remind them of the borrowing risk due to a possible mismanagement of commercial loans," he said.

"I even urge Bank Indonesia, the central bank, to impose strict measures against the domestic borrowers who have failed to submit reports on the development of their commercial loans to the central bank," he said.

Mar'ie did not specify the current position of the private sector's outstanding foreign debt. But, he announced last December that the private sector's foreign debt had reached US$36 billion as of the end of September, as compared to $29.54 billion as of June.

He told a hearing with the House's budgetary commission in December that the private sector's debts increased by $6.8 billion during the period between July and September of last year, while the government's outstanding borrowing fell by almost $3 billion during the same period.

According to Mar'ie, that the country's total foreign debt stood at $93 billion as of September, of which $56.66 billion was owed by the government and the remaining $36 billion by the private sector.

Governor of Bank Indonesia Soedradjad Djiwandono said yesterday that he was committed to strengthening its control over the private sector's foreign debt, considering that the sector is expected to be the backbone of the country's development in the future.

Strict control of commercial loans is essential to maintain the country's balance of payments at a safe level, he said.

Ceiling

Mar'ie also said yesterday that the monetary authority is now considering revising the country's existing ceiling on offshore loans. He would not yet reveal any details of the planned revision of the ceiling.

The government has thus far set the ceiling on offshore commercial loans at between $5.6 billion and $6.5 billion. This policy is to remain in effect until next fiscal year. The annual ceilings on foreign loans to the central bank, state banks and private banks are set at $500 million, $1 billion and $500 million, respectively.

With the existing ceilings, private companies are permitted to borrow up to $2.8 billion from foreign creditors in the current fiscal year and up to $2.9 billion in the next fiscal year, while state firms may borrow up to $1.4 billion in 1994-95 and up to $1.6 billion in the next fiscal year.

The Chamber's chairman, Aburizal Bakrie, told reporters after yesterday's meeting he was optimistic that the private sector is now able to manage its offshore borrowing under a prudential principle scheme.

"I am personally not worried about the increase in the private sector's foreign loans because our debt service ratio is quite good," he said.

Hadi Soesastro, an executive director of the Center for Strategic and International Studies, suggested yesterday that it is better for the government to realign its monetary policies, including those related to the development of the country's interest rates and rupiah convertibility. He also advised that the governemnt tighten its control of inflationary factors, instead of wasting time managing the private sector's foreign borrowing.(fhp/hdj)