RI secures $5b loan to shield economy

Aditya Suharmoko, The Jakarta Post, Jakarta | Sat, 12/06/2008 8:04 AM  

Indonesia has secured US$5 billion in standby loans from several parties to help plug the budget deficit and keep the economy growing amid the global financial crunch that has made it difficult for countries to raise funds. 

Finance Minister Sri Mulyani Indrawati said Friday the loans, from Australia, Japan, the Asian Development Bank and the World Bank, could be drawn upon whenever Indonesia needed them. 

State Minister for National Development Planning Pas-kah Suzetta said the standby loans would only be used if economic growth slowed to 5.8 percent in the first quarter of 2009.

The economy grew by a fairly healthy 6.1 percent in the third quarter of 2008 from a year earlier. But with the downturn expected to kick in here next year, the government has slashed the growth forecast from around 6 percent to between 4.5 and 5.5 percent. 

Mulyani said the standby loans would be beneficial given the current condition in which investors were turning away from emerging economies such as Indonesia. 

Those who chose to invest, she went on, demanded higher yields for government bonds due to a lack of confidence in the financial market. Mulyani cited the five-year government bond yield, which increased from 9 percent to 15 percent in a short time. 

“It is too expensive (for bonds), while the (budget) deficit is used for development, particularly for poverty eradication, infrastructure and health. It is unfair if a country like ours must pay high interest rates for development,” she said.

The 2009 budget deficit is earmarked at Rp 53 trillion (US$4.55 billion), half of which will be financed by issuing bonds, Mulyani said. 

The remaining $2.8 billion is expected to be obtained from bilateral and multilateral institutions. 

Mulyani warned if emerging countries had to pay high yields, they might decide to drop or halt their development programs, saying “It’s not right, because emerging countries need to catch up with development.” 

“Therefore the decision (at the G20 meeting) is, if the market is still in shock, then the need from the market will be substituted with other bilateral and multilateral sources that offer a relatively more stable interest rate, such as LIBOR plus 20 or 30 basis points.” 

In addition to the standby loans, Indonesia has signed bilateral swap arrangements (BSA) with Japan, China and South Korea worth $6 billion, $4 billion and $2 billion, respectively, to support a possible liquidity shortage. 

“If an economy runs short of liquidity, it can ask for liquidity support. Under the agreement, if I and Pak Boed (central bank governor Boediono) suffer a liquidity shortage, Japan has agreed to give the $6 billion in BSA,” Mulyani said. 

Separately, Boediono said Indonesia would receive $2 billion this month in program loans from the World Bank. 

Analysts say Indonesia’s economy has strong domestic demand and a relatively less open economy that will help it weather the global slowdown, but warn that external funding pressures remain a challenge.