Survey of recent developments

Abstract

The period under review has been overshadowed by the financial crisis of the state oil enterprise Pertamina. For some years past Pertamina was known to be borrowing heavily overseas to finance some of its large and wide-ranging development projects. Much of this borrowing was short-term, to avoid the exigencies of government approval for longer-term external borrowing and in the expectation that short-term debt could be “rolled over” from year to year. This proved increasingly difficult as international money markets tightened in mid-1974. For some months Pertamina managed to get by on the quarterly instalments of oil revenue due from foreign companies and its own tax liabilities which the Government permitted it to withhold. But late in February and again early in March of this year, Pertamina was unable to repay or refinance on the due date short-term debt of about $100 million owing to overseas financial institutions. The Government, greatly concerned about the possible repercussions of a Pertamina default on Indonesia’s image and credit standing, stepped in decisively. Through the Central Bank it paid off the two loans and guaranteed all of Pertamina’s overseas debt. It also announced that henceforth all overseas borrowing by Indonesian state enterprises would be in the name of Bank Indonesia or the Ministry of Finance. In the following weeks, further far reaching measures were reported to get at the root of the problem — the proliferation of Pertamina’s empire, with quite inadequate accountability to or control by the central government. Searching examination of Pertamina’s financial accounts and of the economic soundness of the major projects, especially the PT Krakatau steel project, was initiated, the managing director PT Krakatau was replaced, and the Minister for Mining let it be known that the Government planned to divest Pertamina of all activities not closely related to the oil industry. © 1975, Taylor & Francis Group, LLC. All rights reserved.