Mar'ie reaffirms govt's ability to pay debts

Mar'ie reaffirms govt's ability to pay debts

JAKARTA (JP): Minister of Finance Mar'ie Muhammad reaffirmed
yesterday that the government had no intention of applying for a
rescheduling of its foreign debts, currently estimated to be
about US$58 billion.

Mar'ie said after a meeting with President Soeharto that the
government did not have any plan to ask for debt rescheduling,
despite the negative impact of the yen's surge against the
American dollar which had significantly raised, in dollar terms,
the amount of Indonesia's total debts to over $100 billion,
including private borrowings.

Mar'ie made the remarks in reply to reporters' questions about
President Soeharto's statement last week that Indonesia was quite
capable of managing (servicing and repaying) its foreign
debts.

"We don't have any intention of asking for a rescheduling of
our foreign debts, including those denominated in the Japanese
yen," he said.

The finance minister, who met with the President to report on
his recent trip to Europe and the United States, also reaffirmed
the government's commitment to repaying its foreign debts
according to schedule.

Asked about the World Bank's recent warning regarding the high
level of the Indonesian debts, the minister said that the
government had been applying prudential debt management policies
even without the World Bank's warning.

"We have been exercising great caution, even without the World
Bank telling us to do so," he commented, adding that the
establishment in 1991 of the government's special team in charge
of monitoring foreign borrowings reflected the government's
concern about the need to carefully manage the foreign debts.

The minister said that the government's debts were still at a
safe level because most of them were concessional loans.

"The government's commercial loans are only around three to
four percent of its total debts," he said.

The minister said that the government's outstanding debts
totaled about $58 billion.

According to Bank Indonesia (the central bank), the
government's outstanding external debts totaled $64 billion as of
last month.

About 71.4 percent of the total debts are categorized as
concessional loans, carrying annual interest rates of less than
3.5 percent per annum and a repayment period of up to 25 years.
Another 25.7 percent are semi-commercial loans and the remaining
three percent are commercial loans. About 40 percent of the total
debts are denominated in the Japanese currency.

Interest rates on the semi-commercial and commercial loans are
about six percent.

According to the central bank's records, the debts owed by the
private sector total about $30 billion.

Mar'ie said that the government's debt service ratio (DSR; the
ratio between export receipts and debt servicing) was about 20
percent, while that of the private sector was about 12 percent.

"We will continue to try to reduce the country's total DSR of
around 32 percent," he said.

Soeharto last week dismissed doubts about Indonesia's ability
to repay its high foreign debts.

The President said fears that the country would not be able to
settle its foreign debts were baseless, given the sound condition
of the country's economy.

The latest report of the World Bank, which will chair the next
annual meeting of Indonesia's creditors grouped in the
Consultative Group on Indonesia in Paris next month, voiced
concerns over Indonesia's indebtedness.

"The government needs to manage debt carefully within an
overall, coordinated framework," the executive summary of the
report said.

The World Bank also called for a strengthening of the role of
the Commercial Offshore Loan Team and for the setting of ceilings
to limit public or quasi-public external borrowings to prudent
levels.

The report praised Indonesia's sound macroeconomic management.

"But these policies alone might not be sufficient to insulate
Indonesia from sudden averse shifts in portfolio preferences,"
the World Bank said in a thinly-veiled reference to the financial
crisis that engulfed Mexico early this year.

To reduce such vulnerability, the report said, short-term debt
needed to be carefully monitored and international reserves
maintained at higher levels to guard against the increased
volatility of capital flows.

"If necessary, a forceful tightening of monetary policy and
significant fiscal action would minimize the danger of major
capital outflows," the World Bank added. (hen/vin)