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)