Tony Hotland and Urip Hudiono, Jakarta – Vice President Jusuf Kalla says the government has no option but to take up the new loans offered recently by foreign creditors as it lacks other financing sources to fully cover this year's budgetary needs.
He told reporters Friday that both issuing more bonds and relying on the privatization program for extra money contained serious drawbacks.
Furthermore, the reallocation of unspent loan commitments was far from being a straightforward matter as many of these loans were tied to projects already underway, while the full disbursement of others was scheduled to take place over a number of years.
Foreign creditors grouped in the Consultative Group on Indonesia (CGI) offered Wednesday a total package of US$5.4 billion in loans and grants for this year to support the government's medium-term development plans, and to help with the reconstruction of disaster-hit areas.
Kalla was responding to criticism from some quarters of the government's move to seek new foreign loans despite what they say is the country's already high level of sovereign debt.
State Minister for National Development Planning Paskah Suzetta said Thursday that the government may not take up all of the pledged loans given the high level of unspent funding allocations in the current state budget. The exact amount would be determined during the upcoming talks on the budget's annual mid-year revision between the government and the House of Representatives.
Kalla said the government had sought other domestic financing sources to cover the cost of the budget, such as through more privatizations, but was faced with the reality that only limited assets remained that would be of interest to investors, as well as the likelihood of a political backlash from the antiprivatization lobby.
"Everything has been sold – all the good, high-value assets, including Indosat. Nobody really wants to buy the remaining low-value ones," he said. "And if we were to offer what valuable assets remain, there would be the usual outcry from the House and the unions. That's the problem with privatization in Indonesia."
The government had planned to offer a 7 percent stake in state gas utility PT PGN to raise Rp 3.5 trillion (US$376 million) in privatization proceeds last year, but then canceled the plan. Meanwhile, the overall target for the privatization program this year has been set at a mere Rp 1 trillion.
Kalla further said that the issuing of more government bonds would be more expensive in terms of maturities and interest costs.
Indonesian sovereign bonds currently carry an interest rate of around 12 percent, as compared to between 2 and 3 percent on concessional foreign loans, which have maturities of between 30 and 40 years, he said. Government bonds normally have 10-year maturities, with only one bond series currently in the market having a 30-year maturity.
Separately, Coordinating Minister for the Economy Boediono said the latest loan and grant offers from the CGI would not worsen Indonesia's debt situation, and that they would be put to good use in supporting the government's future focus on social welfare development programs.
"Our indebtedness level in terms of the amount we borrow and our repayment needs will show no net increase," he said. "Neither will we suffer a widening gap between our debt stock and foreign exchange reserves, which have recently been increasing."
The government says that Indonesia's debt ratio can continue to decline to 42 percent of gross domestic product this year, from 48 percent last year, even if the new debts are to be incurred.
Boediono further said that any grants that were received would be directly disbursed to the public through rural development projects and reconstruction assistance for disaster-hit areas of Yogyakarta and Central Java.