Foreign Capital Still Needed To Help Finance Development: BI

Jakarta, Dec 18 (Antara) - Senior Deputy Governor of Bank Indonesia Mirza Adityaswara said the country still needs foreign capital to help finance its development. The fund reallocated from fuel oil (BBM) subsidy is not enough because of the big deficit in the state budget. "The foreign capital is needed to cover the deficit, therefore we need the foreign capital inflow to continue," Mirza said here on Wednesday. A big fund is needed to finance development especially infrastructure projects. The country needs to improve its infrastructure to facilitate its economic development and to attract more foreign investors. Foreign investors have complained about the country`s poor infrastructure condition. The banking industry also needs foreign capital to maintain its liquidity , Mirza said, adding the loan to deposit ratio (LDR) is relatively high with 90 percent of third party fund held by banks already used to finance credits. "We need to maintain a favorable condition that foreign capital would continue to flow into the country and keep them from flowing out," he said. He said the central bank wants to show to foreign investors that it is responsive and would keep the inflation under control. The country`s inflation surged to 1.36 percent in November from 0.47 percent in October this year as a result of the BBM price hike. Mirza said he appreciated the government policy of cutting the BBM subsidy, saying the policy is expected to reduce the current account deficit. Earlier, Bank Indonesia said foreign capital inflows totaled Rp177.75 trillion until late last month larger than Rp35.9 trillion in the whole of last year. "Capital inflow this year were the largest in the country`s history," the central bank Governor Agus Martowardojo said in a bankers dinner. Agus said the stability oriented policy has strengthened the confidence of investors in the quality of the country`s macro economic policy. "The capital inflows have maintained investment interest in the share and securities markets," he said. In addition, perception of risk against Indonesia in the world financial market has continued to improve as shown by a drastic decline in Credit Default Swap from 303 basis point in August 2013 to 142 basis point in mid November 2014, he pointed out. He said the strong capital inflows has been prompted partly by the decline in the country`s current account deficit. In the third quarter of 2014, the current account deficit fell to US$6.84 billion or 3.07 percent of the country`s Gross Domestic Product (GDP) from US$8.69 billion or 4.07 percent of the GDP in the second quarter. Agus predicted that the current account deficit would decline further to 3 percent of the GDP by the end of this year. Improvement of the current account balance followed a surplus in the trade of commodities other than oil and gas notably exports of manufactured goods.