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)

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