RI to keep fiscal policy prudent

RI to keep fiscal policy prudent

JAKARTA (JP): President Soeharto assured a visiting World Bank
delegation yesterday that Indonesia would continue its sound
economic management and would always be prudent in managing its
foreign debts.

The President, according to Finance Minister Mar'ie Muhammad,
made the remarks in response to a suggestion from the World Bank
team that the Indonesian government step up its sound macro-
economic management in light of an uncertain international
economic climate.

"The World Bank acknowledges our prudent policies. However,
judging from recent developments in the world's economy and from
the recent experiences of Mexico's financial crisis, the World
Bank has asked us to step up our sound economic management even
more," reported Mar'ie.

Mar'ie yesterday accompanied the World Bank team, led by the
new Vice President for East Asia and the Pacific Region Russell
Cheetham, in a meeting with President Soeharto.

Cheetham, who was the director of the World Bank's resident
staff here in the 1980s, recently replaced Gautam Kaji.

President Soeharto, Mar'ie added, reassured Cheetham that
Indonesia will continue managing its debts in a prudent manner by
accepting only soft and semi-concessional loans of long-term
maturities.

"But the President also told Mr. Cheetham that he'd like the
World Bank and other multilateral agencies to consider the impact
of the rising yen on Indonesia's debt burdens," Mar'ie said
without elaborating on what Soeharto meant specifically.

Cheetham will coordinate and preside over the annual meeting
of the Consultative Group on Indonesia (CGI), an organization of
donor agencies and countries headed by the World Bank.

CGI is scheduled to meet again in Paris in July.

Soeharto also expressed his concern on Tuesday about the
excessive yen appreciation to Peter Sullivan, the Asian
Development Bank Vice President for the Far East.

Senior officials of the National Development Planning Board
said Wednesday that the government is likely to review the
financing of several development projects, including those of the
strategic industries, due to the rising yen.

Cheetham said he was impressed with Indonesia's high economic
growth, which exceeded seven percent last year, and he hoped that
the high economic expansion would be maintained to enhance equity
and alleviate poverty.

He said he and President Soeharto discussed the latest
situation of the world economy and the impact the recent
financial crisis in Mexico has had on other countries. They also
exchanged views as to what kind of economic management could
effectively cope with all that uncertainty.

Weak

Reports from Tokyo yesterday indicated that the dollar remains
weak as investors sat on the sidelines waiting for a crucial
Bundesbank meeting, which the market did not expect to result in
a cut in German interest rates.

The spot dollar was quoted at 88.31-33 yen in late trading
after moving between 88.16 yen and 88.47 yen, compared with
88.45-48 yen a day earlier and New York's late Wednesday quote of
88.43 yen.

Although Indonesia has never once rescheduled its debt since
1967, some analysts have expressed concerns about the rising
Japanese currency because, they say, every time the yen goes up
by one percent against the dollar, it adds $300 million or more
to Indonesia's debts outstanding.

The Japanese government, the biggest provider of Indonesia's
loans, already stated two weeks ago that it had no remedy for the
growing debt burden that the yen's sharp rise has inflicted upon
the recipients of its loans.

Official figures cite that Indonesia's foreign debts, most of
which are long-term government loans, totaled around US$88
billion. About 40 percent of those loans is denominated in yen,
with annual interest rates of between two-and-a-half and three
percent.

About 15 percent of the country's 1995-1996 State Budget,
which commences next month, will be financed by foreign
development loans.

Mar'ie said last week that the government planned to increase
the proportion of yen in Indonesia's foreign exchange reserves
(around $13 billion) from the present level of 35 percent.

The minister also said that the government would "try to
lobby" multilateral agencies whose loans are sometimes partly
yen-denominated, to denominate all their loans in U.S. dollars.
(hdj)