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low growth of short-term foreign loans continued to be witnessed in the country in August as a weak economy prompted companies to reduce their need for external debt.

Total external debt grew by 6.3 percent to US$323 billion in August year-on-year (yoy), recent Bank Indonesia (BI) data showed. That compares with 10 to 11 percent growth in 2014, 2012 and 2011, respectively.

The private sector contributed to the slow growth, which saw foreign loans contracting 3.9 percent yoy in August, even deeper than the 3 percent in the previous month. Companies in the mining and financial sectors contributed to the contraction, while manufacturing, electricity, gas and water begun to increase, the data showed.

The latest data indicates that the economy has yet to significantly improve as companies tend to postpone their need for debt and rather choose to pay their due overseas loans, economists say.

“There are several companies waiting for the economy to pick up before adding debt. They [companies] think that they don’t need to finance their capital expenditure expansion through debt,” said Budi Hikmat, chief economist and director for investment relations at Bahana TCW Investment Management.

The economy is expected to recover from a six-year low of 4.79 percent growth last year to 5.1 percent this year, against the backdrop of weak global economic recovery.

Mohammad Faisal, Center of Reform in Economics (CORE) Indonesia research director, attributed the decline in private sector external debt to slow global economic growth, particularly for export-oriented manufacturing activities.

That is in line with the decline in imports of capital goods so far this year, indicating that private companies are restraining their purchase of machinery for business expansion. Imports of capital goods declined the most in January to September, contracting by 12.66 percent yoy to $16 billion.

Bank Central Asia (BCA) chief economist David Sumual said weak domestic demand also triggered industries to hold their needs to boost production capacity, particularly in prominent sectors, such as automotive, consumer goods and property--reducing their need for external debt.

“Commodity-related companies, which utilized a lot of dollar debts back then, had been hit by the slump in global prices and they were struggling to repay their loans,” he said.

The government’s ongoing tax amnesty could help the country’s private sector in reducing dependency toward external debt as big taxpayers were endorsed to repatriate their funds, which then were injected as equities for their local subsidiaries, David added.

Such moves could change the pattern in Indonesia’s private sector external debt, most of which had its sources from back-to-back loans, meaning that parent companies overseas provide loans for their local subsidiaries.

CIMB Niaga chief economist Adrian Panggabean said the current pattern of external debt tended to be more prudent as more than 75 percent of the country’s foreign debt was long term in nature, with half of it was used for the public sector to finance budget and infrastructure projects.

Private sector debt, which accounts for half of the country’s external debt, was mainly long term as well, since private companies used the funds to finance their productive activities.

“In many ways, from a private sector viewpoint, this downward trend in external debt is a reflection of caution against the weak and uncertain business environment going forward,” Adrian said.