Yen appreciation to slow RI's growth: Economists
JAKARTA (JP): The sharp appreciation of the Japanese yen against major currencies and the rupiah will affect this year's growth of Indonesia's economy, economists say.
Hadi Soesastro and Pande Radja Silalahi, both of the Centre for Strategic and International Studies (CSIS), said on Saturday that the country's economic growth will probably reach only 6.1 percent this year, far lower than the government's estimate of seven percent.
The yen appreciated by 13.8 percent against the U.S. dollar from 111.65 yen to the dollar in early January to 98.19 on Friday and by 16.8 percent against the rupiah from Rp 19.20 to Rp 22.20.
Hadi said the yen appreciation, therefore, will force Indonesia to substantially increase its services for its debts to Japan.
According to Coordinating Minister for Economy and Finance Saleh Afiff, the overseas debt of the Indonesian government and private sector currently stands at about US$90 billion, of which more than 40 percent is predominately in yen.
Economist John JOI Ihalauw, who is the rector of the Satya Wacana Christian University in Salatiga, Central Java, told The Jakarta Post during a telephone interview over the weekend that the increased debt servicing is also likely to force the government to reduce its development projects.
The government, under its budget plan, will increase its development spending to Rp 27.39 trillion ($12.6 billion) this fiscal year from Rp 25.22 trillion last fiscal year.
Debt payment
The government, which expects to obtain new foreign aid of Rp 10 trillion this fiscal year, is also projected to spend Rp 17.65 trillion for debt servicing.
Pande and Hadi also said that they saw no alternative but to slow down the pace of development activities because the government's funds originally allocated for development activities will probably have to be reduced for debt repayment.
"The government should delay the development of some big projects to spare funds for paying its debt," Hadi said.
However, Pande said that people should not panic when observing the yen's sharp appreciation.
He suggested that the government and companies borrowing funds from Japan should hedge their debt repayments to Japan by diversifying their currency reserves.
Ihalauw said Indonesia cannot wait for the realignment of the yen within a short period of time because Japanese political situations will not support the taking of such a measure.
"With the replacement of three prime ministers within a period of one year, Japanese leaders would have no time to look into its economic policies thoroughly," he said. "They will not take any measure but sticking to its previous policies."
Silalahi, Susatro and Ihalauw all suggested that Indonesia try to reduce dependency of its economy on relations with Japan.
According to the Central Statistical Bureau (BPS), Indonesia's imports from Japan last year reached $6.2 billion or 22 percent of its total imports of $28.3 billion.
Japan, with total investment commitments of almost $14 billion as of Jan. 15, has also been Indonesia's single largest foreign investor.
It is, however, quite a serious matter to evade dependency, Pande said.
Lawyer Todung Mulya Lubis said that it is almost impossible to break Jakarta's close ties with Tokyo.(09)