Trade deficit hasn't dented forex reserves: BI

Trade deficit hasn't dented forex reserves: BI

JAKARTA (JP): Bank Indonesia Governor J. Soedradjad Djiwandono
said yesterday that Indonesia's June trade deficit had not
affected the country's foreign exchange reserves.

Soedradjad told a hearing with the House of Representatives'
Commission VII, which overseas trade, banking and finance, that
exchange reserves held by Bank Indonesia had increased
significantly over the past few months through banks' foreign
exchange sales to the central bank.

He said that the trade deficit could be covered by the inflow
of foreign capital, especially private capital. Therefore, the
foreign exchange reserves of the central bank had not been
affected.

Bank Indonesia's foreign exchange reserves stood at $14.29
billion as of last July, up from $13.88 billion in June, $13.42
billion in May and $13.39 billion in April. But the reserves
declined slightly to $14.26 billion (sufficient to finance
imports for 4.56 months) in August.

Indonesia recorded a trade deficit of $204.9 million in June,
the first in the past four years.

Meanwhile, Minister of Industry Tunky Ariwibowo told
journalists after a hearing with the House's Investment,
Manufacturing, Mines and Energy Commission yesterday that
Indonesia should make all-out efforts to increase exports in
order to cope with the trade deficit.

"We should first examine what were the main causes of the
declining exports and of the increasing imports... so that we can
take effective measures to deal with the trade deficit," Tunky
said.

Soedradjad said that efforts to boost exports and reduce
imports are important, not only to restore the trade balance to
surplus, but also to reduce the current account deficit.

He said that during the current fiscal year, Indonesia's
current account deficit may exceed the earlier estimate of US$4.1
billion. The current account deficit last fiscal year was $3.4
billion.

Balance of payments

"However, our balance of payments is still in a safe position
because, as I said, the deficit can be covered by the inflow of
foreign capital, especially private capital," Soedradjad said.

He said that the current account deficit will be caused mainly
by the deficit in the service account, which is expected to reach
a deficit of $12.4 billion, as compared with a deficit of $11.5
billion last fiscal year.

In pace with the rise in investment activities in Indonesia,
Soedradjad said imports are projected to increase further this
fiscal year to $37.1 billion, from $34.1 billion in the 1994/1995
fiscal year. Meanwhile, exports are expected to rise to $45.4
billion, up from $42.2 billion last fiscal year.

"The only way to reduce our current account deficit is by
boosting our exports and restraining imports as well as reducing
our deficit in services," Soedradjad said.

Soedradjad added that overseas borrowings by commercial banks
had been kept within the limits set annually by the government.

In fiscal year 1992/1993, for example, the ceiling on overseas
borrowings was set at US$1.18 billion and the actual borrowings
totaled $1.08 billion.

Between the 1993/1994 and the 1995/1996 fiscal year, the
ceilings on overseas borrowings by commercial banks were set as
follows: $1.33 billion (actually borrowed: $1.33 billion) in
1993/1994; $1.23 billion (actual $1.8 billion) in 1994/1995 and
$1.27 billion in 1995/1996 (actual as of August $440 million).

Soedradjad added that, as a result of the improvement of
Indonesia's credit rating in the international market from BBB-
to BBB, the terms of loans obtained by Indonesian banks have also
improved.

For example, the interest rates on overseas borrowings paid by
Indonesian state banks in 1992/1993 floated at 1.5 percentage
points above the London Inter-Bank Offered Rate (LIBOR). In
1995/1996 the interest rates declined to 0.9 percentage points
above LIBOR.

The interest rates on borrowings by private banks floated at
2.5 percentage point above LIBOR in 1992-1993 but they decreased
to 1.5 percentage point above LIBOR in 1995-1996.

Meanwhile, Hendrobudiyanto, a director of the central bank,
disclosed yesterday that bad loans at Indonesia's commercial
banks decreased slightly to 4.16 percent of outstanding credits
as of last June, from 4.24 percent last April and 3.34 percent in
Dec. 1993.

According to the central bank's weekly report dated Aug. 15,
commercial banks' credits, including foreign exchange credits,
stood at Rp 207.2 trillion (US$91.1 billion) as of last June.

Hendro said the collectibility rate of loans provided by
commercial banks increased to 88.37 percent of their outstanding
credits as of last June, from 87.77 percent last April and 85.83
percent in Dec. 1993. (kod/rid)