No worries about debt: BI chief
No worries about debt: BI chief
JAKARTA (JP): Bank Indonesia's Governor Soedradjad Djiwandono
reassured foreign bankers yesterday that the country's
international reserve holdings have been diversified to match its
annual foreign liabilities.
"Therefore, there should not be any worries about our
capability to service our foreign debts," Soedradjad told a
business luncheon of the Association of Foreign Banks'
Representatives here.
Soedradjad acknowledged, though, that the yen's surge has had
a significant impact on Indonesia's foreign debt stocks because
around 40 percent of its foreign liabilities is in yen.
He said did not want to belittle the impact of the steep rise
of the Japanese yen, notably against the American dollar, since
early last month.
But in so far as Indonesia's foreign debt service burdens this
year are concerned, the impact of the appreciating yen is rather
small, he added.
The 1995-1996 state budget allocates Rp 17,900 billion ($8
billion) for servicing the government's foreign debts.
He said the annual foreign debt service burdens are calculated
at the beginning of every year.
"We already know far in advance how much we should repay in
dollar or yen and other foreign currencies this year. And we have
accordingly adjusted the composition of our foreign reserve
holdings," Soedradjad added.
Increase
For example, he noted, 35 percent of Indonesia's foreign
reserves of about US$13.3 billion at present consists of yen.
That is a marked increase from 27 percent in 1993.
Soedradjad recounted analysts' estimates that every one
percent rise in the yen's rate against the dollar raises the
amount of Indonesian foreign debts outstanding by around $300
million.
He conceded that if Indonesia's total foreign debts, currently
estimated at the equivalent of around $90 billion (including $24
billion in private sector's loans), were converted into dollars,
their amount might have been very close to the $100 billion mark.
Analysts here estimate that the 16 percent rise in the yen's
rate over the last six weeks alone has increased Indonesia's
foreign debt stocks by at least $5.7 billion.
"But one should take into account that most of our foreign
debts are long-term liabilities with maturities ranging from 15
to 20 years," Soedradjad argued.
During that long period of time, the total debt stocks may
fluctuate according to developments in the yen's exchange rate,
he said.
He admitted that in the longer term the rise in the debt
stocks would increase Indonesia's debt service ratio against
exports which is now estimated at 31 percent.
Therefore, he added, it has become more imperative now to
further increase exports because "our capacity to repay our debts
depends on our export capability."
Challenges
Earlier in his remarks at the meeting, Soedradjad described
the challenges Indonesia has been facing as a result of the
opening of its economy to international competition.
"On one hand, we are facing uncertainty about the world
economy, the international financial and monetary condition," he
said.
On the other, he added, Indonesia is encountering increasingly
tough competition because almost all other countries have also
been reforming their economies to become more efficient and
competitive.
"Therefore, we have no other choice. We have to adjust to the
reality all the time through deregulation measures and prudent
macro-economic management," Soedradjad added.
The government, he noted, must maintain a prudent fiscal and
monetary management as well.
"We have been pursuing a sound fiscal policy by requiring the
state budget to be balanced every year."
On the monetary side, the government has been working hard to
maintain a sound balance of payments with a sustainable current
account deficit, realistic exchange rate and single-digit
inflation.
These tasks, Soedradjad conceded, are not simple or easy,
especially because the open economy makes Indonesia quite
sensitive to the developments in the world economy where
uncertainty is the rule. (vin)