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Tuesday, February 07, 2006

Indonesia seeks US$2.5b in loans from CGI to over budget deficit

Despite recent calls to reduce the country's reliance on foreign debt, the government is still hoping to secure at least US$2.5 billion in loans from creditors in the Consultative Group on Indonesia to help cover this year's budget deficit.

The loans, said Finance Minister Sri Mulyani Indrawati during a hearing Monday with the House of Representatives' finance commission, would form part of a total of $3.55 billion in external loans that the government was eying for this year.

"We are expected $1 billion in program loans from the World Bank, the Asian Development Bank and Japan this year. There will also be project loans totaling $2.55 billion, with $1.53 billion of these coming from the CGI," she said.
Other project loans include $915 million from non-CGI lenders, mostly in the form of export credits, and $100 million in undisbursed pledges made in connection with last year's Aceh tsunami disaster.

Japan, the World Bank and the ADB are the three largest creditors grouped in the CGI, which is scheduled to hold its annual meeting sometime in March. The group pledged $3.4 billion in loans and grants last year, besides $1.7 billion in grants and interest-free loans for Aceh.

While the government plans to raise Rp 35.1 trillion (some $3.5 billion) from external sources to help finance this year's budget deficit, projected at Rp 22.4 trillion, or 0.7 percent of gross domestic product, it also plans to raise Rp 50.9 trillion from domestic sources, including through privatizations and bond sales. However, of the total borrowings, up to Rp 63.5 trillion will go toward paying installments on existing debts.

Sri Mulyani said Indonesia's total outstanding foreign debt as of last year amounted to $61.04 billion, but pointed out that the country's debt-to-GDP ratio had declined to 22.7 percent from 42.2 percent in 2000.

Most of the debts are in the form of bilateral loans and are denominated in Japanese yen, which entails certain risks. On the other hand, the interest rates on the loans are more stable.

"The government will maintain prudent debt management, borrowing only when needed at the lowest possible rate and for the longest possible term, and when the projects are ready to proceed," she said.

"We will also carefully guard the exchange rate between the rupiah and the yen, as well as against the dollar, to reduce potential risks vis-a-vis our debts."

Urip Hudiono, The Jakarta Post, Jakarta
February 07, 2006

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