Sat, 23 Aug 2003

'RI to repay foreign debts as scheduled'

The Jakarta Post, Jakarta

Minister of Finance Boediono said on Friday that the government would not reduce the budget allocated for repayment of maturing foreign debts next year, as such a move would be seen as defaulting on the debt payment obligation and would result in serious consequences to the country's overall economy.

He told reporters that the government would repay the maturing foreign debts as scheduled.

A number of factions in the House of Representatives criticized the draft 2004 state budget, partly because of the relatively large allocation toward repaying foreign and domestic debts, while the budget for development programs was limited.

Under the proposed budget, Rp 44.89 trillion (about US$5.41 billion), or 2 percent of gross domestic product (GDP), was allocated toward repaying debt principal.

In comparison, spending for development programs is set at Rp 68.10 trillion, which lawmakers said was too small to help create a stimulus on the economy.

Several major factions at the House demanded the government to revise the budget to provide greater stimulus, saying that the 4.5 percent economic growth target assumed in the proposed budget was not enough to create more jobs to help resolve the chronic unemployment problem in the country.

The House budget committee is scheduled to start deliberating the proposed state budget early next month.

The government is under pressure to come up with a credible state budget, including a commitment to ensure the repayment of maturing foreign debts, to help revive investor confidence in the economy, particularly because the International Monetary Fund (IMF) would no longer be playing a major role in overseeing the country's economic reform program.

The expiration of the IMF economic bailout program will also make Indonesia ineligible for a debt rescheduling facility from the Paris Club, which is a key consideration in the development of the budget. For the past couple of years, Indonesia has been enjoying around $3 billion in annual debt rescheduling from the Club.

Investor confidence is crucial not only for attracting badly needed foreign investments, but also for retaining the support of the country's traditional donors.

Indonesia would still need foreign loans to help finance the 2004 state budget deficit, estimated at 1.2 percent GDP.