Japan's rate-cut will help private sector

Japan's rate-cut will help private sector

JAKARTA (JP): The Bank of Japan's move to cut its discount
rate by half to 0.5 percent last Friday, which has been followed
by a depreciation of the yen, will favor businesses in Indonesia,
economists said here on Saturday.

Director of the Institute for the Development of Economics and
Finance, Didik J. Rachbini, noted economist Kwik Kian Gie and
banking analyst Rijanto said that the rise of the U.S. dollar
above 100 yen would be more favorable to debt repayment on the
part of private companies than on the part of the government.
They said this is because interest rates on loans to private
companies are usually adjusted periodically in line with market
developments, while the rates for government loans are generally
fixed for a long term.

Indonesia's foreign debt, as of April, stood at about US$96
billion, of which about 40 percent was denominated in yen. Of the
total debt, approximately 60 percent was owed by the government
as against 40 percent owed by the private sector.

In July the government won a pledge of another $5.36 billion
in aid for this fiscal year from donor countries and
organizations grouped in the World Bank-led Consultative Group on
Indonesia (CGI). Of the new aid, $2.16 billion is to come from
Japan, carrying an annual interest rate of 2.5 percent.

"The government's loans from Japan, whose interest rate has
already been determined on a long-term basis, will not be
affected by last week's decline of the discount rate," Didik
said.

Kwik concurred with Didik's view, saying that interest rates
on loans to the Indonesian government will remain at the level
agreed from the outset.

Didik said Indonesian negotiators should have anticipated the
possible decline in the Japanese discount rate and asked for an
interest rate lower than the 2.5 percent set for the Japanese
loans under the CGI scheme.

Rijanto said the depreciation of the yen against the dollar
will benefit Indonesia's importers of Japanese capital goods and
other products because their prices will decline in terms of the
dollar.

Japan's interest rate cut propelled the dollar into 100 yen
territory last Friday for the first time in more than seven months.

According to the Central Bureau of Statistics, Indonesia's
imports from Japan last year reached $15.62 billion, almost half
of Indonesia's total imports of $31.98 billion. (04)

System -- Page 5