Analysts say rupiah repayments the last step<\/p>\n
LONDON (Reuters): Indonesian banks have been repaying
\ndistressed hard currency debt in rupiah for more than a week, a
\nworrying development that could bring the country's financial
\ncrisis to a head, London analysts said.<\/p>\n
The repayment of dollar-denominated loans in rupiah at current
\nrates has only added to selling pressure on the Indonesian unit
\nand is aggravating the crisis, they said.<\/p>\n
Either Jakarta decides to guarantee a selected amount of the
\noutstanding debts or the failure of the currency to recover will
\nforce the country to call a unilateral halt to repayments and a
\nnationwide debt moratorium.<\/p>\n
"It looks more and more like they will have to opt for the
\nChilean solution from the 1980s and allow the central bank to
\nprovide dollar liquidity to a number of key corporates and let
\nthe rest sink or swim," said one analyst at a European bank in
\nLondon.<\/p>\n
Bankers in London, who declined to be quoted because of the
\nsensitivity of repayment negotiations, confirmed reports from
\nSingapore on Tuesday that repayments in rupiah have been seen for
\nat least a week and in increasingly significant amounts.<\/p>\n
Companies unable to find scarce dollars on the local market
\nare asking Indonesian banks to accept foreign currency loan
\nrepayments in rupiah rather than dollars. The banks are then
\nnegotiating similar deals with western bank creditors.<\/p>\n
"Many creditors are beginning to think it is better to accept
\ndollar debts in rupiah rather than run the risk of not getting
\npaid at all," said one analyst at a European bank.<\/p>\n
"The rupiah is then being immediately hedged though the
\nforeign exchange market and it is exaggerating the rupiah's
\nweakness -- and ultimately the whole situation."<\/p>\n
Indonesia's huge private-sector foreign currency liabilities
\nhave spiraled as a result of the rupiah's 75 percent collapse
\nagainst the dollar since July of last year.<\/p>\n
This has brought their ability to repay into question and the
\nconsequent scramble for dollars to cover these loans has, in
\nturn, exaggerated the rupiah's slide. A vicious circle has
\nensued, dealers said.<\/p>\n
Indonesian President Soeharto's statement last week that the
\ngovernment would not bail out troubled companies sent shivers
\nthrough western creditors and has prompted some to accept rupiah
\nfor the loans for fear of large-scale bankruptcies.<\/p>",
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