Tony Hotland and Urip Hudiono, Mataram/Jakarta – President Yudhoyono confirmed the government's intention Tuesday of repaying ahead of schedule Indonesia's multibillion dollar debt to the International Monetary Fund (IMF), which would be done in two stages and within two years.
"I have talked to Bank Indonesia and I think it's about time we paid. We will repay our $7.8 billion debt to the IMF in two years," he said during a visit to Mataram, the capital of West Nusa Tenggara, on the island of Lombok.
During a briefing of provincial governors, Yudhoyono explained that the repayment was essential to reducing the country's heavy debt burden, whose continued existence has come in for heavy criticism from some sections of the community lately.
He asked members of the public to be fair, however, and not allow the foreign debt question to be turned into a political football as Indonesia still required loans to support the nation's economic and development plans.
"We need to now manage our debts better, and continue the efforts to repay them earlier by increasing domestic revenues, both from fiscal and non-fiscal sources. We will also continue to prevent corruption so that we can pay our debts and improve our economy," Susilo said.
The government has been under public pressure to reduce the country's foreign debt and improve its management. Last year, the nation's foreign borrowings stood at US$72.8 billion, including borrowings on the global bond market and the IMF debt.
This accounts for some 45 percent of gross domestic product (GDP), with principal and interest payments accounting for a quarter of state revenues as compared to less than 10 percent for the country's education sector.
Separately, BI Deputy Governor Hartadi A. Sarwono said the central bank would soon finalize a debt repayment plan and submit it to the government for approval. He acknowledged that besides a one-off payment of the IMF debt, a two-tranche repayment was among the options being considered.
"We may pay back half of the debt this year, and the rest next year," Hartadi said. "Our main concern is the ability of our foreign exchange reserves to cover the repayments."
Indonesia's outstanding debt to the IMF takes the form of a standby loan that BI manages to support the country's forex reserves. It matures in 2010, and is part of some $25 billion in total loans the Fund extended since the outbreak of the 1997 Asian financial crisis to help Indonesia rescue ailing banks and restructure its debts.
BI Senior Deputy Governor Miranda S. Goeltom had previously said that early debt repayment was "almost certain", considering Indonesia's recently strengthening forex reserves, which currently stand at some US$43 billion.
Analysts have, however, warned of risks in hastily repaying debts out of the forex reserves, which consist mostly of the short-term portfolio funds that have recently flooded into Indonesia's high-yield financial markets, but which could flow out again at any time. The rupiah and local stocks have recently come under sustained pressure resulting from negative global sentiment.
Indonesia ended its loan agreement with the IMF in 2003 amid criticism from nationalist circles of a number of economic reform policies tied to the loans, including subsidy cuts and the privatization program.
Finance Minister Sri Mulyani Indrawati, who first suggested the early repayment of the IMF debt, said a preliminary study by BI showed it would be more beneficial to repay the debt given rising borrowing costs.
Sri Mulyani, a former IMF director, also said that with Brazil and Argentina having recently repaid their debts to the IMF, Indonesia and Turkey were now its largest debtors, and virtually its largest income contributors, which could be considered unfair given Indonesia's developing country status.
IMF country director Stephen B. Schwartz had earlier said that the Fund would welcome whatever Indonesia decided to do, stressing that every member country member had the right to repay its debts ahead of schedule.