Japanese experts upbeat on RI's debt

JAKARTA (JP): Indonesia's external debt will be manageable, even at a moderate economic growth rate of between 3 percent and 4 percent, as long as export growth occurs sufficiently faster than import growth, according to a proposal by five prominent Japanese economists.

"In our view, Indonesia is not insolvent, and will remain solvent as long as the economy is well managed," stated the proposal publicized here late on Wednesday.

The report said that the "growing out of debt" strategy would be achieved through the expansion of exports which did not lead to corresponding import growth.

It added that measures must be taken to promote economic growth by channeling domestic and external resources into productive and viable investment projects.

"These measures should include the continued efforts in banking reform and corporate debt restructuring, development of sound financial and capital markets, and a sufficiently stable exchange rate regime to retain export competitiveness," the proposal said.

Indonesia's total external debt at the end of March 1999 was estimated at US$146 billion, or about 85 percent of gross domestic product. More than $70 billion of the total debt is owed by the public sector.

The government recently said that it had no plans to seek additional debt relief, despite strong pressure from leading non- governmental organizations and legislators.

"We welcome the decision of the new administration to honor the existing public debt obligations, while effectively easing the payment burden through new financing and rescheduling," the proposal said.

The report said that taking debt reduction steps would prompt the international financial markets to lend to Indonesia.

The government has said that it intends to seek a rescheduling facility on its $2 billion foreign debt maturing next year.

The government plans to meet with the Paris Club creditors grouping sometime in January.

Meanwhile, Japanese deputy vice finance minister Takatoshi Ito said on Wednesday that Japan would support Indonesia's efforts to ease the burden of its public sector external debt obligations by providing new debt financing.

"I think Japan is more forthcoming than the other creditors," Ito told The Jakarta Post on the sidelines of a media conference about publication of the proposal at Bank Indonesia.

He said the Japanese commitment would be made at the meeting between Indonesia and the Paris Club.

He said that an approval of the country's new letter of intent, which is basically part of the government's economic strategy, by the International Monetary Fund would pave the way for the Paris Club meeting.

The IMF is expected to approve the new letter of intent sometime in the middle of next month.

The Japanese economists also reminded Bank Indonesia to pay close attention to the stability of the rupiah not only against the U.S. dollar but also against other major currencies, including the Japanese yen.

"Japan is one of Indonesia's trading partners," said Masaaki Komatsu, an economist at the Hiroshima University, one of the economists responsible for the proposal.

"A currency basket should be used at least as a criterion for assessing the appropriateness of the exchange rate policy," he said. (rei)