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)