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