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Oil Rich, Profit Poor
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10867 |
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Section : |
CURRENT ISSUES
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| Issue
Date : |
7 / 1986 |
2,688 Words |
| Author
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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
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