Yen appreciation to slow RI's growth: Economists

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)