High U.S. rates help relief RI debt burden
JAKARTA (JP): Increased interest rates in the U.S., which will likely be followed an appreciation of the U.S. dollar against the Japanese yen, are expected to favor Indonesia's debt servicing, economist Mohammad Arsjad Anwar says.
Arsjad, an economics lecturer at the University of Indonesia, said in a seminar here Thursday that Indonesia's debt servicing is very much influenced by the fluctuation of the yen's exchange rates because more than 40 percent of its US$89 billion offshore borrowing is predominantly in yen.
He forecast a stronger dollar against major currencies, especially the yen, next year because the United States is projected to take any action necessary to absorb capital inflow, either from loans, portfolio or direct investments, in order to offset its widening trade deficits.
"The dollar inflow into the United States will distort the dollar supply and demand on the world financial market and the American currency, therefore, will get stronger next year," he said. "This means relief for our debt servicing."
The government is projected to spend Rp 17.65 trillion ($8.1 billion) on debt servicing this fiscal year which will end next March.
The Consultative Group for Indonesia (CGI) last July reported that Indonesia had spent $9.4 billion on debt servicing during the first six months of this year, of which $5.2 billion was paid by the government and the remainder by the private sector.
According to Minister of Finance Mar'ie Muhammad, private offshore borrowing reached $29.5 billion as of June, most of which was in short-term debts.
Deficit
Mari Pangestu, head of the Economics Department of the Center for Strategic and International Studies, predicted that this year Indonesia will likely suffer a current account deficit of $3.2 billion, 10 percent higher than last year.
She said the main cause of the deficit will come from the service sector, including debt servicing. "Deficits in services alone are likely to increase to $1.1 billion."
However, Mari noted that the deficit will be compensated for by the increasing capital inflow, improving the condition of the country's balance of payments.
The government estimates that the country's payments surplus will likely increase to $1.12 billion this fiscal year from $506 million last fiscal year.(rid)