Indonesia will not use foreign exchange reserves

Indonesia will not use foreign exchange reserves

JAKARTA (JP): Governor of Bank Indonesia (the central bank) Soedradjad Djiwandono stated yesterday that Indonesia will not resort to using its foreign exchange reserves to cover its current account deficit -- expected to reach US$7.9 billion this year.

Speaking at a budget briefing for the press on Wednesday night, the governor said that the deficit can still be offset by official and private capital flows.

"Official capital flows are estimated at US$5.7 billion and private capital flows at US$10.6 billion. So our capital account will still be in surplus," he said, adding that the US$10.6 billion capital flows will be in the form of direct investments portfolio capital.

Besides, he said, Indonesia also has a stand-by loan of US$2 billion that can be taken at any time needed.

"So we don't need to use our foreign exchange reserve to finance our imports," he stressed, at the briefing, which was attended by a number of ministers.

According to the governor, Indonesia's foreign exchange reserve is now recorded at US$14.5 billion or equivalent to between four and five months of imports.

He pointed out that the foreign exchange holding will not decrease during the current fiscal year even though the country's foreign debt payments will reach US$6.05 billion, which is higher than US$5.5 billion during the current fiscal year.

Indonesia has used part of the funds from the sales of its state-owned companies' shares -- Telkom and Timah -- to accelerate its foreign debt payments.

Indonesia's current account deficit could reach US$7.9 billion or 3.8 of the gross domestic product (GDP) during the current fiscal year (April 1995 to March 1996).

But during the next fiscal year, the deficit is expected to decrease to US$6.9 billion or 3.1 of the GDP.

"To decrease the deficit, we should promote our non-oil exports and reduce unnecessary imports," he said.

According to the governor, non-oil export growth during the next fiscal year is estimated to reach 19.5 percent, while import growth will be cut down to 11 percent.

"We're optimistic that we can reduce import growth from 32 percent during the current fiscal year to only 11 percent during the next fiscal year. We know from experience that the government can do it," he stated.

"Our debt service ratio (against exports) will decrease from 33.7 percent during the current fiscal year to 30.8 percent during the next fiscal year," he said.

He added that the government will continue to pursue prudential monetary and fiscal policies.

"The monetary authorities will strictly control offshore loans, particularly in the private sector," he said.

The government recently issued a number of monetary policies to cool down economic overheating. It increased banks' reserve requirement from two to three percent, closed non-banking financial institutions to new-comers, and tightened control over their overseas borrowings. (13)