Govt to maintain

Govt to maintain
restrictions on
commercial loans

JAKARTA (JP): Minister of Finance Mar'ie Muhammad said here
yesterday that the government will continue to restrict the
inflow of offshore commercial loans to avoid worsening the
country's debt-service ratio.

The private sector should maximize the domestic financial
sources to finance their investment projects, the minister said,
adding that the private sector should avoid using offshore loans
despite their growing role in the country's development efforts.

"The strict control of offshore borrowing is essential, not
only to maintain the level of the balance of payments at a
comfortable level, but also to reduce the debt burden," the
minister said at a seminar on strategic financing sources.

Bank Indonesia Governor J. Soedradjad Djiwandono, president of
the state-owned Bank Negara Indonesia (BNI), Winarto Soemarto and
the chairman of Merrill Lynch Limited for the Asia and Pacific
Region, Peter Clarke, were among the speakers at the seminar held
by the Editor weekly magazine.

Mar'ie promised to further address the country's non-bank
financial sources to enable the private sector to benefit from
the government's massive infrastructure projects in the 1994-1999
sixth Five-Year Development Plan (Repelita VI) period.

Capital market

The capital market should be further developed to give the
private sector better alternatives for raising investment funds,
he said.

Indonesia should invest at least Rp 660 trillion (US$314
billion) to sustain economic growth in the current five-year
development plan. The private sector is expected to contribute
around 73 percent of that figure.

The central bank governor shared the finance minister's view
on the need of the private sector to enter the capital market to
obtain investment funds.

"I think the capital market is the best financing alternative
at present," Soedradjad said, adding that domestic banks are also
a good financing alternative, but the available funds in the
banks are not sufficient to meet the huge investment demand.

He said the private sector should use local financial sources,
as raising commercial loans from overseas will still be
restricted in order to reduce the country's debt burden.

Soedradjad said the country's debt-service ratio is expected
to decline to 20 percent by the end of the Repelita VI period in
1999 from around 32 percent at present.

He said the government will also continue to improve the
investment climate to further attract foreign investments.
"Foreign direct investment is one of important financial
alternatives for development in the next five years," he said.

Dollar rush

In another development, the finance minister dismissed reports
of a rush to buy dollars based on rumors of the government's plan
to devalue the rupiah.

"There is no rush at all," the minister told newsmen following
his meeting with President Soeharto after attending the seminar.

The minister said that dollar transactions have remained
normal this week and "there is nothing wrong with the rupiah."

Newspapers reported that many people have converted their
deposits to dollars to avoid losses from the rupiah depreciation
caused by the estimated increase in the inflation rates. Other
newspapers also reported that people have rushed to buy dollars
in the country's major cities for fear of the rupiah devaluation.

Mar'ie acknowledged that there was a surge in dollar
transactions earlier this week. "But this is a seasonal increase
that takes place annually when haj pilgrims exchange their rupiah
into dollars," he said.

More than 150,000 Indonesians will join the haj pilgrimage
this year, some of whom departed for Mecca last week.

Meanwhile, Soedradjad said the increase in the U.S. interest
rates will not affect the country's monetary system and that the
central bank will not adjust the discount rate of its Bank
Indonesia Certificate (SBIs) due to the increase.

He acknowledged that the rise in the U.S. rate will further
attract some to convert their rupiah deposits to the dollar.

The interest rate on deposits in the U.S. greenback offered by
local banks ranges between four and five percent per annum at
present. The rise in the U.S. rate is expected to further
increase the rate.

Interest rates of rupiah deposits, which range between eight
and nine percent per annum, are considered less attractive due to
the estimated increase in the inflation rate.

Soedradjad, however, said that investing in the rupiah remains
more profitable despite a significant increase in the inflation
rate during the first quarter of this year.

"The inflation is still manageable and I think it could be
checked below nine percent this year," he said when he was asked
about the estimated nine percent increase in the inflation rate.

Inflation was checked at 9.7 percent last year.(fhp/hen)