JAKARTA -- Indonesia has become Asia's largest debtor country. Yet as this oil-dependent country of 170 million people enters another year of uncertainty in the oil markets, the government is resisting the temptation to reschedule the debt and continues to be considered a good credit risk abroad.
Earlier this month, Indonesians were told that more than half of routine government expenditures will go to service the country's $35 billion public debt in the next fiscal year.
The country's fiscal 1989 budget, announced at the beginning of January, earmarked an estimated $6.5 billion for debt servicing.
This means there will be almost no increase in development spending for the third straight year.
For President Suharto, who has made his commitment to development the hallmark of his 21-year rule, the fact that debt servicing will outstrip development spending by 20 percent could be seen as something of a personal blow.
Yet to Suharto, the prompt repayment of foreign debts has also become an article of faith. The economy he inherited in 1966, weakened by years of mismanagement, forced him to reschedule the country's debt.
But the years of prosperity and growth stimulated by the oil boom in the mid-70s and early '80s came to an abrupt end in 1986 when the price of oil crashed below $10 a barrel.
Two successive budgets since then have reflected strict austerity measures and an escalation of the debt.
The government says the mounting debt burden is caused by the appreciation of the yen and European currencies against the dollar.
With 41 percent of the debt denominated in yen against 37 percent in dollars, repayments have effectively been increased $1.5 billion for the coming fiscal year.
"The government has a cash flow problem," said Anwar Nasution, a leading Indonesian economist.
"A large part of the debt is in appreciating currencies, while nearly 100 percent of our exports are paid for in depreciating currencies," Nasution said.
Nasution and others have sounded the alarm about the debt picture, deploring the country's dependence on foreign loans.
Some feel the government should reschedule the repayments in order to expand public spending.
The coming year will be the third in a row that an estimated four million civil servants will go without a pay increase, and inflation in Indonesia is running at around 9 percent.
But rescheduling has been categorically ruled out. According to the national development planning minister, Johannes Sumarlin, "our debt service ratio is higher than we would like, but it is still manageable, and we will honor it."
Finance Minister Radius Prawiro argues that rescheduling will only serve to limit capital inflow -- giving Latin America as an example.
A more realistic solution, some say, would be to restructure or refinance the debt.
Former finance minister Frans Seda, now a private businessman, argues that if the government were to seek easier repayment terms on at least part of the debt it would enable more public spending on development.
The government may already be managing its debt burden more creatively. A $300 million commercial loan recently syndicated by three foreign banks is reportedly being used to make payments on outstanding loans with less attractive terms.
Indonesia continues to borrow and is considered a good credit risk. The government can draw on $2.5 billion in unused standby credits.
Concessionary loans poured in last year from Japan, the Netherlands, Britain and France, and Indonesia is the fourth largest recipient of World Bank loans.
Should anyone be worried that Indonesia will one day default ?
Most foreign bankers and western economists remain upbeat about Indonesia's ability to make the transition from oil-trading nation to potential newly industrialized country. The government is pinning its hopes on the performance of nascent non-oil exports such as plywood and textiles.
But skeptics argue that the impact of the stock market crash on interest rates in western markets could depress consumer demand for Indonesian exports, and the threat of increased protectionism remains a concern.
A key to the success of the non-oil sector is also the pace of government deregulation.
Last month the government unveiled the sixth package of measures in five years aimed at cutting red tape and removing monopolistic practices.
But many criticize the slow and piecemeal way in which areas of entrenched economic privilege have been attacked.