Indonesia asks Chinese bank to cut loan interest rate as mega rail project exceeds budget
- A top minister says Indonesia can repay its debt with the interest rate at 3.4 per cent, but will push for 2 per cent to cope with a US$1.2 billion cost overrun
- It is ‘highly lik
Resty Woro Yuniar
Published: 7:58pm, 11 Apr, 2023
Indonesia is seeking to renegotiate the interest rate of a new Chinese loan to cover the US$1.2 billion cost overrun of the under-fire Jakarta-Bandung high-speed rail project, the flagship programme of the Belt and Road Initiative in the nation.
Luhut Pandjaitan, Indonesia’s coordinating minister of maritime and investment affairs, said on Monday that Jakarta intended to again persuade the China Development Bank (CDB) to lower the interest rate for a US$560 million loan to 2 per cent. The bank had agreed to reduce the initial rate of 4 per cent to 3.4 per cent during Luhut’s trip to Beijing last week.
“Yes, we want 2 per cent, but we can’t achieve everything. If you borrow from overseas, the interest now can reach 6 per cent. So if we get 3.4 per cent [loan interest], we’re doing OK, even though it’s not really OK,” Luhut said on Monday. “We still want to negotiate again.”
Luhut, who is also President Joko Widodo’s top man in boosting ties with China, said he was optimistic Indonesia could repay its debt to China as tax revenue was increasing and the government’s efficiency was improving.
The US$560 million loan must be repaid within 30 years.
Andry Satrio Nugroho, head of centre of industry, trade, and investment at Jakarta-based Institute for Development of Economics and Finance, said the 3.4 per cent interest rate was an “acceptable” number for both parties.
“China certainly doesn’t want to [provide a loan] at a 2 per cent rate. The 3.4 per cent rate is a number that can be accepted by both parties,” he said.
“The question now is whether KCIC will be able to optimise operations, and how long will it take for KCIC to [pay off] its debts,” he said, referring to PT Kereta Cepat Indonesia-China, the joint venture between Indonesian and Chinese consortiums behind the project.
Sixty per cent of KCIC shares are owned by an Indonesian consortium of state-owned companies, while the rest are held by their Chinese counterpart.
Andry said the amount of debt – including a previous US$4.55 billion loan from CDB that accounted for 75 per cent of the project funding – that Jakarta owed Beijing now to complete the high-speed railway would not put Southeast Asia’s biggest economy at risk of the so-called debt trap.
“But it’s highly likely that the government will have to use the state budget every year to fund the operations of the train,” Andry said.
Indonesia has been using state coffers to cover the cost overrun. In December, for example, it injected US$214.8 million into its consortium to keep the project running.
Both parties still need to negotiate on the loan guarantee, with Beijing preferring it to be provided for from the state budget, while Jakarta wants it to be guaranteed by PT Penjaminan Infrastruktur Indonesia, a state-owned institution under the Ministry of Finance that was established to assume debt obligation for contractual risks related to government actions.
https://www.scmp.com/week-asia/economics/ar...pgtype=homepage
