Default Fears Grow as Indonesia Stumbles Michael Richardson International Herald Tribune Wednesday, March 14, 2001 SINGAPORE As Indonesia lurches from one new crisis to another, foreign economists and bankers are worried that it will face increasing difficulty in repaying its massive debts and may default on them. . At the end of 2000, the country's total public and private debts amounted to approximately $262 billion, or 170 percent of gross domestic product. . Street demonstrations by protesters demanding the resignation of President Abdurrahman Wahid, which continued in Jakarta on Tuesday, have helped weaken the Indonesian currency, the rupiah, making it even more costly for the government and private sector to repay their foreign loans. . Meanwhile, a group of members of the Indonesian Parliament, including a former top economic adviser to Mr. Wahid, warned that political instability on top of sectarian and separatist conflict had brought the country to the brink of collapse. They called for all major parties to work together and set up a national coalition government. . ExxonMobil Oil Indonesia Inc., a unit of the giant Exxon Mobil Corp. of the United States, said that it had shut down its operations completely in the restive province of Aceh on Tuesday because of deteriorating security, throwing into doubt Indonesia's reputation as a reliable supplier of liquified natural gas to Japan and other Asian countries. . "It's not a safe environment for us to work," the company's spokesperson, Julia Tumenkol, said in Jakarta, adding that she did not know when operations would resume. . Oil and gas sales are a major source of revenue for the Indonesian government. ExxonMobil Oil late last week started to scale back operations in Aceh, where its facilities and staff have been repeatedly attacked in clashes between armed separatists and the Indonesian security forces. . ExxonMobil Oil is the sole natural gas supplier to PT Arun Natural Gas Liquefaction Co., which liquifies the gas before it is shipped under long-term contracts to Japanese and South Korean buyers for home use and generating electricity. . The government said Monday that it would meet gas deliveries to Japan and South Korea from the country's second plant at Bontang, in Kalimantan, or will ask Malaysian and Australian producers to plug the shortage. . The Indonesian public sector, mainly the central government, accounted for $152 billion of the country's debt, or 58 percent of the total. . "The sheer size of this debt makes Indonesia a prime candidate for being caught in a permanent debt trap," said Daniel Lian, an economist in the Singapore office of Morgan Stanley Dean Witter Co. . Falling oil prices and a new program to transfer more financial resources to restive regions are cutting central government revenues. . In a report to clients this week, Barclays Capital warned that the "growing fiscal and balance of payments crisis" in the world's fourth-most-populous country could force it to halt debt repayments. . Analysts said that such a drastic step, which previous Indonesian governments have avoided, would shatter already-fragile business and investment confidence and increase the cost of future loans. . Last year, Indonesia spent 8 percent of its gross domestic product just paying interest on external liabilities, reducing a $28 billion trade surplus to an $8 billion surplus in the country's current account - a broader measure that includes servicing the country's debt. About 40 percent of the central government's operating expenditure was used to service its debt. . "This sort of debt burden puts the country dangerously close to a permanent debt trap, in which resources available to economic development steadily diminish," Mr. Lian said. . Such a situation, he said, could well be protracted and would cause "strained relations with creditors, large and growing net capital outflows, and a deterioration in foreign exchange reserves, despite trade and current account surpluses." . Mr. Lian said that to avoid a debt trap, Indonesia would have to reduce its debt to no more than 80 percent of gross domestic product - a task analysts say is virtually impossible in current circumstances. . The World Bank issued a similar warning recently, amid worries that a prolonged disagreement between the Indonesian government and the International Monetary Fund over the pace and scope of economic changes in Indonesia could trigger a crisis of confidence. . The Fund's refusal to sanction a new $400 million loan to Indonesia until the disputes are resolved is helping to unnerve financial markets. . As a result, the rupiah is under pressure and domestic interest rates are rising, both of which will make it more difficult for the public and private sectors to repay their debts. . Currency traders said Indonesia's central bank sold tens of millions of dollars for the second consecutive day on Tuesday to prop up the rupiah, which was closed at 10,300 to the dollar in Jakarta. At one point on Monday, before the central bank intervened, the dollar rose to a 30-month high of 11,500 rupiah. . The Indonesian central bank raised its overnight interest rate Monday by half a percentage point, to 12.125 percent, to help prop up the rupiah. For Related Topics See: Business

< < Back to Start of Article SINGAPORE As Indonesia lurches from one new crisis to another, foreign economists and bankers are worried that it will face increasing difficulty in repaying its massive debts and may default on them. . At the end of 2000, the country's total public and private debts amounted to approximately $262 billion, or 170 percent of gross domestic product. . Street demonstrations by protesters demanding the resignation of President Abdurrahman Wahid, which continued in Jakarta on Tuesday, have helped weaken the Indonesian currency, the rupiah, making it even more costly for the government and private sector to repay their foreign loans. . Meanwhile, a group of members of the Indonesian Parliament, including a former top economic adviser to Mr. Wahid, warned that political instability on top of sectarian and separatist conflict had brought the country to the brink of collapse. They called for all major parties to work together and set up a national coalition government. . ExxonMobil Oil Indonesia Inc., a unit of the giant Exxon Mobil Corp. of the United States, said that it had shut down its operations completely in the restive province of Aceh on Tuesday because of deteriorating security, throwing into doubt Indonesia's reputation as a reliable supplier of liquified natural gas to Japan and other Asian countries. . "It's not a safe environment for us to work," the company's spokesperson, Julia Tumenkol, said in Jakarta, adding that she did not know when operations would resume. . Oil and gas sales are a major source of revenue for the Indonesian government. ExxonMobil Oil late last week started to scale back operations in Aceh, where its facilities and staff have been repeatedly attacked in clashes between armed separatists and the Indonesian security forces. . ExxonMobil Oil is the sole natural gas supplier to PT Arun Natural Gas Liquefaction Co., which liquifies the gas before it is shipped under long-term contracts to Japanese and South Korean buyers for home use and generating electricity. . The government said Monday that it would meet gas deliveries to Japan and South Korea from the country's second plant at Bontang, in Kalimantan, or will ask Malaysian and Australian producers to plug the shortage. . The Indonesian public sector, mainly the central government, accounted for $152 billion of the country's debt, or 58 percent of the total. . "The sheer size of this debt makes Indonesia a prime candidate for being caught in a permanent debt trap," said Daniel Lian, an economist in the Singapore office of Morgan Stanley Dean Witter Co. . Falling oil prices and a new program to transfer more financial resources to restive regions are cutting central government revenues. . In a report to clients this week, Barclays Capital warned that the "growing fiscal and balance of payments crisis" in the world's fourth-most-populous country could force it to halt debt repayments. . Analysts said that such a drastic step, which previous Indonesian governments have avoided, would shatter already-fragile business and investment confidence and increase the cost of future loans. . Last year, Indonesia spent 8 percent of its gross domestic product just paying interest on external liabilities, reducing a $28 billion trade surplus to an $8 billion surplus in the country's current account - a broader measure that includes servicing the country's debt. About 40 percent of the central government's operating expenditure was used to service its debt. . "This sort of debt burden puts the country dangerously close to a permanent debt trap, in which resources available to economic development steadily diminish," Mr. Lian said. . Such a situation, he said, could well be protracted and would cause "strained relations with creditors, large and growing net capital outflows, and a deterioration in foreign exchange reserves, despite trade and current account surpluses." . Mr. Lian said that to avoid a debt trap, Indonesia would have to reduce its debt to no more than 80 percent of gross domestic product - a task analysts say is virtually impossible in current circumstances. . The World Bank issued a similar warning recently, amid worries that a prolonged disagreement between the Indonesian government and the International Monetary Fund over the pace and scope of economic changes in Indonesia could trigger a crisis of confidence. . The Fund's refusal to sanction a new $400 million loan to Indonesia until the disputes are resolved is helping to unnerve financial markets. . As a result, the rupiah is under pressure and domestic interest rates are rising, both of which will make it more difficult for the public and private sectors to repay their debts. . Currency traders said Indonesia's central bank sold tens of millions of dollars for the second consecutive day on Tuesday to prop up the rupiah, which was closed at 10,300 to the dollar in Jakarta. At one point on Monday, before the central bank intervened, the dollar rose to a 30-month high of 11,500 rupiah. . The Indonesian central bank raised its overnight interest rate Monday by half a percentage point, to 12.125 percent, to help prop up the rupiah. SINGAPORE As Indonesia lurches from one new crisis to another, foreign economists and bankers are worried that it will face increasing difficulty in repaying its massive debts and may default on them. . At the end of 2000, the country's total public and private debts amounted to approximately $262 billion, or 170 percent of gross domestic product. . Street demonstrations by protesters demanding the resignation of President Abdurrahman Wahid, which continued in Jakarta on Tuesday, have helped weaken the Indonesian currency, the rupiah, making it even more costly for the government and private sector to repay their foreign loans. . Meanwhile, a group of members of the Indonesian Parliament, including a former top economic adviser to Mr. Wahid, warned that political instability on top of sectarian and separatist conflict had brought the country to the brink of collapse. They called for all major parties to work together and set up a national coalition government. . ExxonMobil Oil Indonesia Inc., a unit of the giant Exxon Mobil Corp. of the United States, said that it had shut down its operations completely in the restive province of Aceh on Tuesday because of deteriorating security, throwing into doubt Indonesia's reputation as a reliable supplier of liquified natural gas to Japan and other Asian countries. . "It's not a safe environment for us to work," the company's spokesperson, Julia Tumenkol, said in Jakarta, adding that she did not know when operations would resume. . Oil and gas sales are a major source of revenue for the Indonesian government. ExxonMobil Oil late last week started to scale back operations in Aceh, where its facilities and staff have been repeatedly attacked in clashes between armed separatists and the Indonesian security forces. . ExxonMobil Oil is the sole natural gas supplier to PT Arun Natural Gas Liquefaction Co., which liquifies the gas before it is shipped under long-term contracts to Japanese and South Korean buyers for home use and generating electricity. . The government said Monday that it would meet gas deliveries to Japan and South Korea from the country's second plant at Bontang, in Kalimantan, or will ask Malaysian and Australian producers to plug the shortage. . The Indonesian public sector, mainly the central government, accounted for $152 billion of the country's debt, or 58 percent of the total. . "The sheer size of this debt makes Indonesia a prime candidate for being caught in a permanent debt trap," said Daniel Lian, an economist in the Singapore office of Morgan Stanley Dean Witter Co. . Falling oil prices and a new program to transfer more financial resources to restive regions are cutting central government revenues. . In a report to clients this week, Barclays Capital warned that the "growing fiscal and balance of payments crisis" in the world's fourth-most-populous country could force it to halt debt repayments. . Analysts said that such a drastic step, which previous Indonesian governments have avoided, would shatter already-fragile business and investment confidence and increase the cost of future loans. . Last year, Indonesia spent 8 percent of its gross domestic product just paying interest on external liabilities, reducing a $28 billion trade surplus to an $8 billion surplus in the country's current account - a broader measure that includes servicing the country's debt. About 40 percent of the central government's operating expenditure was used to service its debt. . "This sort of debt burden puts the country dangerously close to a permanent debt trap, in which resources available to economic development steadily diminish," Mr. Lian said. . Such a situation, he said, could well be protracted and would cause "strained relations with creditors, large and growing net capital outflows, and a deterioration in foreign exchange reserves, despite trade and current account surpluses." . Mr. Lian said that to avoid a debt trap, Indonesia would have to reduce its debt to no more than 80 percent of gross domestic product - a task analysts say is virtually impossible in current circumstances. . The World Bank issued a similar warning recently, amid worries that a prolonged disagreement between the Indonesian government and the International Monetary Fund over the pace and scope of economic changes in Indonesia could trigger a crisis of confidence. . The Fund's refusal to sanction a new $400 million loan to Indonesia until the disputes are resolved is helping to unnerve financial markets. . As a result, the rupiah is under pressure and domestic interest rates are rising, both of which will make it more difficult for the public and private sectors to repay their debts. . Currency traders said Indonesia's central bank sold tens of millions of dollars for the second consecutive day on Tuesday to prop up the rupiah, which was closed at 10,300 to the dollar in Jakarta. At one point on Monday, before the central bank intervened, the dollar rose to a 30-month high of 11,500 rupiah. . The Indonesian central bank raised its overnight interest rate Monday by half a percentage point, to 12.125 percent, to help prop up the rupiah. SINGAPORE As Indonesia lurches from one new crisis to another, foreign economists and bankers are worried that it will face increasing difficulty in repaying its massive debts and may default on them. . At the end of 2000, the country's total public and private debts amounted to approximately $262 billion, or 170 percent of gross domestic product. . Street demonstrations by protesters demanding the resignation of President Abdurrahman Wahid, which continued in Jakarta on Tuesday, have helped weaken the Indonesian currency, the rupiah, making it even more costly for the government and private sector to repay their foreign loans. . Meanwhile, a group of members of the Indonesian Parliament, including a former top economic adviser to Mr. Wahid, warned that political instability on top of sectarian and separatist conflict had brought the country to the brink of collapse. They called for all major parties to work together and set up a national coalition government.

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-- Carl Jenkins (somewherepress@aol.com), March 14, 2001