|
|
|
| Current Issue |
|
|
| Resources |
|
|
|
Oil Rich, Profit Poor
| Article
# : |
10867 |
|
|
Section : |
CURRENT ISSUES
|
| Issue
Date : |
7 / 1986 |
2,688 Words |
| Author
: |
Thomas J. Reckford
Thomas J. Reckford is a senior associate at the Center for
Strategic and International Studies and president of the World
Affairs Council of Washington, D.C. He is the coauthor, with
Ambassador Ronald Palmer, of Building ASEAN: Twenty Years of
Southeast Asian Cooperation (Praeger, 1987). |
Indonesia trails only Brazil, Mexico, Argentina, and South Korea among the top Third World debtors.
Bankers with significant loans to Indonesia are worried, but not nearly as scared as those with loans in Latin America. They are concerned, however, with the current decline in oil prices and its implications for financial, economic, political, and social order in Indonesia.
The reasons are varied. Indonesia's total debt, both public and private, amounts to $35 billion, based on 1984 data. The debt increased a substantial 14 percent a year between 1978 and 1984. Meanwhile, debt service costs increased 14.5 percent per year and now amounts to a hefty $4.5 billion annually.
The debt service ratio (the percentage of exports spent on servicing the foreign debt) has also become a serious problem. The ratio has grown from 18 percent in 1978 to a worrisome 25 percent today. Howard Turk, in his paper "Asia's External Debt," explains that the official debt service ratio is 20 percent but the national oil exports are overstated due to a complex accounting system resulting from various contractual relationships between Pertamina, the Indonesian state oil company, and foreign oil companies that have evolved since the 1950s.
In any case, debt servicing is an especially tricky task when oil revenues slip below $15 a barrel. This article will examine the myriad implications of the debt problem for Indonesia and for its debtors.
The days of the oil price shocks in 1973-1974 and 1979-1980 were heady ones for oil-rich Indonesia. Most of its Arab partners in the Organization of Petroleum Exporting Countries (OPEC) had small populations and plenty of petrodollars left over to invest in international banks in Europe and the United States.
Indonesia, however, with its huge population (now 162 million), its army of unemployed and underemployed people and its merchants and soldiers eager to get rich quickly, was pleased to be able to borrow large amounts of money. Its credit rating was, of course, enhanced by oil reserves. In turn, the lenders were not shy about encouraging new projects.
Barreling downhill
Indonesia's balance of payments, and thus its ability to
...
Read Full Article
Look for this article in Ask.com
|
|
