Indonesia's foreign debt burden

Indonesia's foreign debt burden

It seems that many people's hope that by the start of the
Seventh Development Plan the Indonesian economy will have taken
off, in the sense that it will no longer be dependent on foreign
loans, will not be realized. On the contrary, according to a
Pacific Economic Cooperation Council (PECC) report, Indonesia
belongs to the group of countries which are unproductive in the
way they manage their foreign loans.

According to the PECC report, as contained in its publication
PEO (Pacific Economic Outlook 1996-1997), the possibility is not
imaginary that Indonesia might eventually encounter problems
related to the ever-increasing growth of its foreign loan burden.
Such a situation could lead Indonesia into grave difficulties, as
has been experienced by a number of Latin American countries, the
most notable example being Mexico.

In the span of six five-year development periods, during which
the country was aided by the Inter-Governmental Group on
Indonesia, the loans have not succeeded in generating growth in
domestic investments, according to the PECC report.

If Indonesia, as observed by PECC, continues to use its
foreign loans for consumptive ends rather than to meet productive
needs that could spur exports, the problem of "questionable
foreign loans" will emerge even before the current long-term
development period is over.

In theory our World Bank loans are soft loans. Such soft loans
are obviously intended, among other things, to suppress our
current account deficit relative to our gross national product.
Two percent should be regarded as the tolerable threshold, yet
Indonesia and Peru have reached the four percent level. The
Mexican economy collapsed at a level of eight percent.

Unless the growth in its current account deficit is
suppressed, Indonesia will continue to be dependent on foreign
loans until the donor countries begin to lose their patience and
say: "That's enough, gentlemen".

-- Merdeka, Jakarta