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)