Indonesia's Govt Considering Cutting Foreign Loans for State Funding

The government is planning to cut foreign debts as an alternative source of state funding, the director general of debt management of the ministry of finance, Rahmat Waluyanto, said.

"We will propose using alternative instruments available in the discussion of the revision budget (to receive funding). We may replace foreign debts with domestic debts," he commented here on Thursday night.

He noted the government has so far been able to obtain loans with a low rate of interest by selling state securities in the domestic as well as international markets after the country’s debt rating was raised to investment grade. Also, he felt issuing bonds right now is less expensive than seeking commercial loans from overseas banks.

"We can later replace the commercial loans with funds collected from the domestic capital market through bond issuances at home and abroad," he said. Additionally, he was of the opinion that seeking loans from the domestic market was more beneficial, as the process could be done without negotiations and the execution could be done directly.

"So there will be flexibility with regard to which instrument to be used, to be considered more efficient, cheaper and able to be quickly executed," he added. Rahmat said the country’s debt ratio to the gross domestic product stands at 24.9 percent, which indicates that the use of debts has been very productive.

"The use of debts has been really productive, especially for financing projects that are productive and increasing growth. So, the debt management so far has been carried out well," he said.

Regarding the possibility of the revised budget’s deficit to expand, he suggested that expansion is estimated to be above 1.5 per cent. He declined to say where the funds to cover the deficit would come from.

"It has yet to be discussed with the House of Representatives. So, I could not tell if assumptions would change or not. For the time being we are still referring to the present assumptions used in the budget for issuing state securities," he said. Rahmat commented that the government has been ready with various alternative funding sources to cover deficits whose projection has yet to be determined in the revised budget.

"What is clear is we have been ready with various funding alternatives to deal with a possible rise or decline in the budget deficit," he added. Due to the increasing world oil prices, the government plans to cut fuel subsidies and state spending.