Private sector warned for rising offshore borrowing

Private sector warned for rising offshore borrowing

JAKARTA (JP): Mohammad Sadli, who has twice held ministerial posts under President Soeharto's leadership, warned yesterday that uncontrolled inflows of private offshore borrowing could pose a threat to the country's economy, given the already heavy debt burden and high inflation.

Sadli, who was the minister of mines and energy from 1973 to 1978, warned that private offshore borrowing might rise in the coming years as a result, in part at least, of the government's tightening of local bank lending.

"The private sector's proportion of foreign debt is going up and we cannot control it because we follow a free foreign exchange regime," Sadli said at a luncheon organized by the Indonesian-Netherlands Association.

Minister of Finance Mar'ie Muhammad said recently that the outstanding debts of the private sector had surged to US$36.34 billion as of the end of September, while the government's outstanding borrowing stood at US$56.66 billion.

According to Coordinating Minister for Economy and Finance, Saleh Afiff, the level of the country's outstanding foreign debt is projected to stand at nearly $100 billion at the end of the next fiscal year, which ends in March 1996. Of this amount, $59 billion is expected to be owed by the government and the remainder by the private sector.

In its efforts to limit offshore borrowing, the government has asked private sector companies to report their offshore borrowing to the central bank. In the absence of a penalty, however, most private sector companies have been reluctant to make reports.

Inflation

Sadli, who served as minister of manpower from 1971 to 1973, said that an uncontrolled rise in offshore private debts would also push inflation to a higher level than the targeted five to six percent this year.

Inflation declined slightly to 9.24 percent last year from 9.77 percent in 1993.

Considering that the government's draft budget for the 1995- 1996 fiscal year is more contractive in nature than this fiscal year's budget, Sadli said government spending would not significantly contribute to inflation.

The government has asked the House of Representatives to approve an 11.9 percent increase in its budget to Rp 78.02 trillion (US$35.4 billion) in 1995-1995, up from Rp 69.74 trillion budgeted in 1994-1995.

"The government has been going all-out to curb inflation in an efficient manner. So, if we still have high inflation this year, we have the private sector to blame," Sadli said.

"Everywhere you see the development of golf courses, condos, and other buildings going on ... a lot of private investment activity," he said.

He hailed the government's decision to slow down the activities of the private sector, especially those which do not support exports, by limiting the expansion of total bank lending to 19 percent for the next fiscal year.

"Perhaps, as a result, the rate of growth will not be 7.5 percent but somewhat lower and calmer, and inflation will be able to be managed. In the end, the economy will be healthy," Sadli said.(rid)