RI's external debt high but manageable: Salomon

RI's external debt high but manageable: Salomon

JAKARTA (JP): Although Indonesia's external debt burden is
relatively high, it remains manageable, investment bank Salomon
Brothers Inc. believes.

In its latest report on its sovereign assessment on Indonesia,
the bank said that the country's external debt burden is
overweighted because there is very little domestic debt.

"It is important to note that mismanagement is not the reason
behind Indonesia's high debt burden, but rather the government's
long-standing policy to finance the country's fiscal and current
account deficits via external borrowing," Salomon Brothers said
in The Republic of Indonesia: Consolidating its Gains, issued in
New York last month and in Jakarta on Saturday.

According to Indonesia's balanced budget law, the government
is not allowed to seek domestic borrowings to fund its fiscal and
current account deficits.

Salomon Brothers contended that Indonesia's external debt is
still under control because virtually all of its public sector
external debt is of medium- to long-term maturities, and nearly
half of the total are soft loans with concessional terms.

Salomon estimated that the country's external debt stood at
approximately US$105 billion at the end of last year, up from $95
billion in 1994.

Out of the loans of almost $105 billion, $79.7 billion have
medium- to long-term maturities and $25 billion bears short-term
maturities.

Indonesian Minister of Finance Mar'ie Muhammad disclosed in
March that the public sector external debt had dropped to
US$59.96 billion by last December from $61.3 billion in
September.

Of the outstanding public debt, $23.65 billion was obtained
under bilateral arrangements with long-term maturities and an
annual interest rate of 2 percent.

The other loans, worth $19.24 billion, were secured under
multilateral deals, also with long-term maturities and an average
annual interest rate of 7.07 percent, and the remaining $14.85
billion under commercial deals with commercial interest rates.

Bank Indonesia, the central bank, disclosed recently that 70
percent of the total offshore private borrowings secured last
year had medium- to long-term maturities -- over three years --
and an average annual interest rate of 1.5 percent above the
London Inter-bank Offered Rate.

Private

Salomon Brothers also applauded the development of Indonesia's
debt structure because the recent rise in the overall debt level
mostly resulted from a surge in private sector borrowing.

In fact, from 1992 to 1994, Indonesia's public sector debt
burden increased only by 9.3 percent, while private sector debt
increased by almost 50 percent.

"This is a reflection of the growing influence of the private
sector on Indonesia's economy, therefore resulting in Indonesian
companies seeking more attractive debt financing abroad versus
domestic sources of credit," the report said.

Salomon Brothers also projected that Indonesia's external
debt-to-export ratio will continue to decline and is expected to
fall to approximately 178 percent by the end of next year, from
the projected 190 percent this year and 202 percent last year.

It also forecasted that the country's debt service ratio will
continue to decline steadily in the coming years as a result of
the government's prepayment of its high-interest rate debts.

The report said: "This trend should continue as the government
continues to pay back old high-interest rate debt and strong
exports growth is maintained."

Minister Mar'ie said last week that Indonesia would prepay
high-interest loans of around $625 million provided by the Asian
Development Bank. The fund for the prepayment would come from the
surplus in the 1995/1996 budget.

The country has so far prepaid a total of $1.5 billion in
high-interest debts to the Asian Development Bank and the World
Bank. The fund for the debt prepayment came from the government's
selling of its shares in telecommunication firms PT Indosat and
PT Telkom and tin miner PT Tambang Timah on overseas stock
markets.

Salomon believes that Indonesia's dependence on foreign
financing will decrease gradually in line with increasing export
activities, rising domestic and foreign investment and also
growing domestic savings. (rid)