RI seeks US$5b in new loans

JAKARTA (JP): Indonesia expects to secure US$5 billion from the World Bank, the Asian Development Bank and Japan to help finance the 1999/2000 budget deficit, according to Coordinating Minister for Economy, Finance and Industry Ginandjar Kartasasmita.

He said on Friday that the Japanese aid would come from the so-called Miyazawa Plan.

"The $5 billion will come from the World Bank, the Asian Development Bank and the Miyazawa Plan," he told reporters following a meeting with several economic ministers.

The draft of the 1999/2000 state budget calls for some $10.32 billion in foreign loans to plug a deficit projected to reach 4.8 percent of gross domestic product.

Ginandjar is expected to meet Japanese Prime Minister Keizo Obuchi and other officials next week in Japan to discuss the terms and conditions of the $30 billion Miyazawa Plan, which was promised by Japan's Finance Minister Kiichi Miyazawa last year to help revive crisis-hit Southeast Asian countries.

The government has said that it would seek $3 billion of the Japanese aid.

Ginandjar also said that during his visit to Japan he would request the loans promised by Japan as part of the Paris Club agreement reached in September of last year.

Under a sovereign debt rescheduling agreement reached between Indonesia and the Paris Club creditor nations, the Japanese government promised to provide Indonesia with $1.3 billion in new untied loans to compensate for the loan repayment of the same amount that Indonesia must make to Japan during the 1998/1999 fiscal year ending in March.

Indonesia reached an agreement with 19 creditor nations to reschedule $4.2 billion in principal payments of the country's sovereign debt which matures in the 1998/1999 and 1999/2000 fiscal years. However, Japan agreed to the loan refinancing because the Japanese Constitution does not allow debt roll over.

Analysts said that aid from the Miyazawa Plan could be less useful to the crisis-hit country because one of the conditions attached to the aid was that recipients must utilize the funds for infrastructure development projects, and were also required to import 50 percent of needed components and expertise for the projects from Japan.

"There are other priorities, like helping the poor, which are more urgent than developing expensive subways or toll roads. The government has to convince Japan of this," said Gadjah Mada University economist Tony Prasetiantono.

The 1999/2000 state budget makes certain assumptions in its calculations, including zero percent economic growth, 17 percent inflation and an exchange rate of Rp 7,500 to the dollar.

Although the rupiah ranged between 7,000 and 8,000 during the last three months of last year, the currency plunged to Rp 9,300 on Friday before closing at Rp 8,975 following the 8 percent effective devaluation of the Brazilian currency, the real.

Ginandjar said that the government would keep a close eye on the development of the rupiah, and expected the Brazilian crisis would not spread to other countries.

Analysts, however, said that the currency crisis in Brazil, the world's eight largest economy, might send Indonesia into a deeper crisis.

"The most damaging external factor to the Indonesian economy is the occurrence of the second contagion effect," said Tony Prasetiantono.

The first contagion effect was the devaluation of Thailand's baht in July 1997, which sent the rupiah along with other regional currencies into a free-fall.

Tony pointed out that the second contagion effect might come from Brazil, Russia and, if it devalues the yuan due to a rising trade deficit, China.

"In the eyes of the U.S. (and the IMF), Russia and Brazil are far more important," he said.

"If the IMF and the U.S. concentrate on these two countries, there will be no resources left for Indonesia," he added.

Indonesia, Thailand and South Korea are relying on the IMF to finance their economic reform programs.

Tony also said that if China devalues its currency, the U.S. would face a larger trade deficit which could force its Congress to halt U.S. financing for the IMF. (rei)