Govt urged to cut its dependency on foreign loans

JAKARTA (JP): Indonesia could reduce its dependency on foreign loans because state revenue from domestic sources had improved in recent years, an economist said over the weekend.

The chairman of Trisakti University's national and city economic research center, Rustian Kamaludin, said the government should phase out foreign loans over the next decade.

"Foreign loans made up 34.2 percent of the total state budget revenue in the first four years of the current sixth five-year development plan, while loan repayments continue to rise," Rustian told a one-day seminar on Indonesia's foreign loans.

He said loan repayments made up 10.2 percent of total government expenditure in the first five-year development plan.

This ballooned to 44.6 percent in the fifth five-year development plan.

Rustian said structural economic changes had improved Indonesia's economy, speeding up industrialization.

One reason for the changes were a shift in focus from the agricultural sector to the industrial sector, which contributed to higher domestic revenue, he said.

Another reason was conservative government budgets which have delivered three consecutive annual budget surpluses, he said.

He said it was encouraging that state revenue from domestic sources were increasing and that tax income was exceeding targets every year.

This fiscal year, the government expects an Rp 817.9 billion (US$340.8 million) budget surplus.

"We have been receiving foreign loans for 28 years with the purpose to cover the budget deficit, but the improvement and the surplus should enable us to phase out foreign loans and find other revenue options," he said.

The Bank for International Settlements report lists Indonesia as one of the world's biggest borrowers, with US$6.3 billion of new credit in the first six month of this year.

Bank Indonesia's governor, J. Soedradjad Djiwandono, said recently Indonesia's total foreign debt reached US$110 billion, with the private sector owing $55 billion.

Indonesia's creditor group, the Consultative Group on Indonesia, at its Paris meeting last year, pledged $5.26 billion in official aid to Indonesia.

The group will meet in Japan this month to discuss this year's financial aid to Indonesia.

Debtor countries like Japan have said they plan to reduce loans to developing countries like Indonesia.

But the state minister for national development planning, Ginandjar Kartsasmita, said he was optimistic that Japan, Indonesia's largest creditor, would not cut loans to Indonesia.

Japan pledged 227.6 billion yen (about $2.16 billion) in the Paris meeting, up from $2.14 billion in the previous year.

At yesterday's seminar, Trisakti University professor, Anna SN Dasril, said an economic structural transformation would help reduce foreign loans.

Another way to reduce foreign loans was for Indonesia to further diversify its export sector, she said.

"The current account deficit has continued to increase since the 1983/1984 fiscal year because of a deficit in the non-oil and gas sector," she said.

The national and city economic research center's vice- chairman, Tulus Tambunan, said foreign direct investment was an alternative to foreign loans.

"Foreign investment has been the major engine of growth in the Indonesian economy," Tulus said. (das)