News Room - Business/Economics

Posted on 05 Mar 2009

Indonesia gets $5.5 billion in loans to plug budget deficit and stimulate economy

 

Indonesia has officially agreed US$5.5 billion of loans from Australia, Japan, the World Bank (WB) and the Asian Development Bank (ADB) to help fill shortfalls in  the state budget, as well as to stimulate the weakening economy.

 

Australia supplies $1 billion and Japan $1.5 billion, WB supplies $2 billion and ADB $1 billion.

 

The loans, coming under the Public Expenditure Support Facility (PESF), will only be used if  the government fails to raise enough funds from bonds and other borrowing. It is also known as a deferred drawdown option (DDO) scheme.

 

“The DDO means the money can be used when it’s needed and it’s not all spent at once. It can be  spent at other times as the need arises,” WB  acting country director Chris Hoban said in a press conference on  Wednesday.

 

The WB loans are payable over 24.5 years, with  a 10-year grace period for repayments, the Washington-based lender said in a statement.

 

Australian Ambassador to Indonesia Bill Farmer said the finalization of their loan would be made this month, and the funds would be available starting in April.

 

“We’re in the middle of finalizing the details.”

 

As to the loan from Japan, it will be available as  a guarantee on the yen-denominated bonds Indonesia plans to sell. Should Indonesia cancel the Samurai bond plan, the loan will be converted to an ordinary loan to help finance the budget deficit.

 

Finance Minister Sri Mulyani Indrawati and Japanese Parliamentary Secretary for Finance Shinsuke Suematsu forged the loan deal during the special ASEAN+3 Finance Minister’s meeting in the Thai resort island of Phuket on Feb 21.

 

The ADB has not revealed any details over its loan pledge yet.

 

Liquidity shortages in the global financial market have forced the Indonesian government to turn to multilateral and bilateral  deals to ensure its budget financing remains intact should it fail to raise needed funds from the regular market.

 

Mulyani said the $5.5 billion in loans could be drawn down up to 2010, and would be “enough” to finance the gap in this year’s budget.

 

She said the loans would only be used if the government failed to issue and sell enough bonds to finance gaps in the budget.

 

The predicted budget deficit stands at Rp 139.5 trillion ($11.6 billion). The government last month sold $3 billion of medium-term notes to help plug the budget gap.

 

According to the Finance Ministry, the government has so far issued Rp 56 trillion worth of bonds.

 

Mulyani said that aside from the deficit, the loans would also be used to  help maintain the financial sector and sustain public expenditure, as well as supporting exports -- all of which are crucial so as to ensure that the economy can expand by 4.5 percent this year, as planned.

 

The loan will be on top of the Rp 73.3 trillion economic stimulus package approved recently by the House of Representatives.

 

Meanwhile, Mulyani also said the G-20 (group of finance ministers and central bank governors from the world’s 20 largest economies) should approve a planned $200 billion package designed to help emerging markets cope with the deepening global economic crisis.

 

“What we expect from the G-20 meeting (in London next month) is a more concrete commitment, such as some hundreds of billions of dollars that can be mobilized to support developing and poor countries,” she said.

 

The G-20 nations include Argentina, Australia, Brazil, Canada, China, France, Germany, India, Indonesia, Italy, Japan, South Korea, Mexico, Russia, Saudi Arabia, South Africa, Turkey, the US, and UK , with the EU also present.