Production capacities may hit 90% next year

JAKARTA (JP): The country's manufacturing sector has shown promising signs of recovery lately with a significant increase in the level of production being recorded.

Coordinating Minister for the Economy Rizal Ramli said here on Tuesday that the production capacity of existing companies was being 70 percent utilized at present compared to about only 40 percent three months ago. This was due to increases in demand both from the local and overseas markets, he explained.

Additional surges in demand over the next few months were expected to further raise the utilization level of current installed capacity to between 80 percent and 90 percent.

"Once we reach full production capacity, foreign investors will enter. So investment will come in by itself," he was quoted as saying by the Antara news agency during a seminar on Indonesia's economic outlook for next year, which was organized by the Econit Advisory Group.

The minister also expressed optimism that the government could improve economic stability by reducing its dependence on borrowings.

Accordingly, the government would reduce the current 4.8 percent budget deficit next year, Rizal said.

Meanwhile, government projects in the upcoming state budget, he said, were largely targeted at the development of rural infrastructure.

Rizal had said earlier that Indonesia would finance infrastructure development using loans from the World Bank's International Development Assistance (IDA) scheme.

The IDA loans, he said, carried interest rates of almost zero percent over a 30-year repayment period.

IDA provides aid for very poor countries only and Indonesia had once been crossed off its list after the oil boom of the early eighties.

Rizal also said that he hoped to obtain $500 million next year through the securitization of natural gas sales to Singapore.

Securitization is the conversion of assets or bank loans into marketable securities, such as Floating Rate Notes or Eurocommerical papers.

State-owned oil and gas company Pertamina has entered into an initial agreement with Singaporean firm Gas Supply Pte Ltd for the supply of natural gas from Sumatra to Singapore.

The deal is expected to generate income in excess of $7 billion over the 20-year span of the contract.

The government, Rizal added, would then sign a securitization deal with Singapore. A securitization deal with Singapore would help convince investors to buy the securities.

According to him, the securitization of gas sales could further improve Indonesia's credit rating from negative to AA+ at least.

Rizal did not elaborate further on the plan.

In September, he said that the government would issue international bonds with the backing of the International Finance Corporation (IFC), a financial arm of the World Bank.

But the IFC later denied having made an initial agreement to guarantee Indonesia's international bonds.

If the government realizes the plan for the new international bond issue, it would be the first since the country was hit by the financial crisis in 1997.

Rizal also admitted that the government's privatization program was proceeding too slowly and that it might drag on into next year.

The government, he said, also had plans to divest its stake in the country's largest bank, the state-owned Bank Mandiri by the end of next year.(bkm/rei)