Mon, 06 May 1996

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)