RI's high deficit still acceptable: WB official

JAKARTA (JP): Dennis de Tray, the representative of the World Bank here, said that Indonesia's widening current account deficit remains under control.

He said that the deficit still poses no serious problem because it is largely the result of increases in imports for productive activities rather than increases in spending on consumer products.

"The deficit is growing because more people are investing in infrastructure and productive businesses activities, which in the future, will not only generate more exports but also reduce imports," he said.

He said that, in contrast, the worsening of the current account deficit of most Latin American countries in the 1980s was mainly caused by a sharp increase in their spending on consumer products.

"But this is not the case with Indonesia as far as I can tell," he told reporters during a break in a World Bank-sponsored conference on infrastructure.

The three-day seminar, which was officially opened by President Soeharto Monday, featured senior government officials and noted business executives from a number of Asian countries.

The expected Indonesian current account deficit was revised upward to $8.75 billion in 1996/97 fiscal year from an earlier estimate of $6.9 billion, due to increasing imports.

The increase in the projection of the current account deficit in this fiscal year, which will end next March, sent an alarming signal to economic observers.

Economists said that the government should be able to curb imports and reduce commercial borrowing from international institutions to control the sharp growth in the deficit.

The failure to curb the growth of the deficit would be fatal for Indonesia, according to the economists, whose foreign loans have already reached the alarming level of around $100 billion. Sixty percent of these are owed by the government.

Senior economist Sumitro Djojohadikusumo said recently that the foreign debts were already at a critical level because Indonesia has to spend 32 percent of its export revenues on debt repayment.

Sumitro said that serious efforts were very much needed to reduce the debt-service ratio to at least 25 percent by the end of the Sixth Five-Year Development Plan period in 1999.

De Tray said yesterday that the government's policy of curbing commercial borrowings from overseas is a good measure to slow further growth in the deficit.

"It is a useful instrument even though it is not 100 percent effective because more and more debts are still coming through private participants," he said.

He reiterated that the increase in offshore borrowing would not become a serious problem as long as the debt instruments are used to support productive activities. (rid/hen)