Indonesia Advisory

Indonesia has approached Australia, Japan, the World Bank and other official creditors to line up credit to help cover a projected $4.4 billion budget deficit next year, a finance ministry official said on Wednesday.

Indonesian policy makers are worried they may face problems raising funds amid market turmoil sparked by fears it could become the next casualty of a worldwide flight from risky assets. The rupiah currency has fallen almost 25 percent this year.
Marking another potential missing revenue stream, an official said plans by state firms for IPOs had been dropped for now.

Rahmat Waluyanto, the Indonesian finance ministry's treasury director general, said the Asian Development Bank had indicated it would make $1 billion available but the terms of other loans were still being discussed.

"This is actually a precautionary measure in case there is trouble in the financial markets which disturbs our bond issues," he told Reuters by telephone, adding that loans would be agreed on a basis whereby they would only be released if there was a trigger.

"Basically they all support us, but as for the numbers, how much they will be, what the terms and conditions are, we have not agreed on those yet," he added.

Australian Treasurer Wayne Swan confirmed Indonesia had approached Australia for a loan, which newspapers reported amounted to about $2 billion.

Indonesia previously sought help from Australia during the 1997/1998 Asian financial crisis, with Canberra lending $1 billion for structural reform in a government-to-government arrangement.

TESTING TIME

"It is the case that the Indonesians have approached a number of international organisations, including the World Bank, and also have approached the Australian government for some assistance at a time which is very testing," Swan told Parliament in Canberra.

Indonesia has forecast its budget deficit will be around 52.7 trillion rupiah ($4.37 billion) next year.

But financial turmoil is making it hard for emerging economies to secure loans or sell bonds as international investors shy away from markets perceived as high risk.

Plans to privatise a number of state firms this year, either through IPOs or sales to strategic investors, had been dropped for now, the state enterprises minister said.

"For now we can forget about any plan for state companies to go public," Minister Sofyan Djalil said.

In September, an Indonesian parliamentary commission approved plans to privatise three state firms including the country's biggest steel maker PT Krakatau Steel, home lender PT Bank Tabungan Negara and national airline PT Garuda Indonesia.

Planning Minister Paskah Suzetta said that Indonesia planned to offer tax incentives in 2009 to help labour-intensive industries including possibly food and beverages, electronics and automotives, amid concerns over potential layoffs.

There has also been market talk that Indonesia was considering assessing the IMF's special Short-term Lending Facility, to boost its foreign exchange reserves.

But President Susilo Bambang Yudhoyono was reported as saying on a recent overseas trip that the government would not seek such loans, saying authorities would prefer to seek funds from other sources.

Once approved, the facility, which is different from a rescue package and is unconditional, allows the recipient country to get up to five times its drawing rights, which should add up to more than $15 billion for Indonesia, analysts said.

Indonesia, Southeast Asia's largest economy, has slashed its 2009 growth forecast from 6.3 percent to 4.5-5 percent next year, as global economic conditions deteriorate.