Collective solution to debt problems ineffective<\/p>\n
The demand for speedier private sector debt repayment has been
\ncited as the main reason behind the recent run on U.S. dollars.
\nEconomist Kwik Kian Gie discusses joint efforts by the government
\nand the business sector to solve the debt problem.<\/p>\n
Question: President Soeharto has assigned Radius Prawiro, an
\neconomic consultant to the government, to lead businesspeople in
\nseeking a solution to their foreign debts. What do you think
\nabout this?<\/p>\n
Kwik: The debts should be solved individually on a case-by-
\ncase basis because the businesspeople have obtained their debts
\nfrom foreign banks through individual transactions with specific
\ncharacteristics. The capital structure of their companies is
\nspecific. Each of the creditor banks has a specific standard in
\nevaluating the health of its borrowers and the collaterals used
\nin credit transactions are also specific.<\/p>\n
Q: How do you see the debts themselves, totaling no less than
\nUS$65 billion?<\/p>\n
K: Many of the domestic borrowers have reached an agreement with
\ntheir foreign creditors on the arrangement of their debt
\nrepayment. Most of them have a sound financial structure, even
\nthough they have debts. They also keep their promise of repaying
\ntheir debts as scheduled.<\/p>\n
Due to the recent sharp depreciation of the rupiah, their
\ndebts have drastically increased. But they still have five months
\nahead to solve their debt problems, with new clear, acceptable
\nschedules of repayment. If everything is clear and the borrowers
\nare honest, foreign creditor banks will be willing to help.<\/p>\n
Q: How could private sector debts reach as much as $65 billion
\nand why did the borrowers meet with the President, who then
\nappointed Radius to lead them in looking for a solution to their
\ndebt problems?<\/p>\n
K: As we can see from television and press reports, the borrowers
\ncomprised 70 of the country's biggest businesspeople. Their total
\nborrowing was therefore very large, of which $65 billion had no
\nclear solution.<\/p>\n
They have not solved their debts because they have not reached
\nagreement with their creditor banks.<\/p>\n
I heard from foreign bank executives that they were surprised
\nto see that the borrowing companies were not transparent in their
\nfinancial reports and in their proposals on the solution of their
\ndebt problems.<\/p>\n
Q: What do you think about the quality of their debts?<\/p>\n
K: I have frequently said that many large and giant
\nconglomerates, not all of them, centralize the coordination of
\ntheir financial management through their holding companies. In
\norder to optimize the utilization of one entity debt, they allow
\nother entities in the same conglomeration to use it. That is why
\ntheir financial management is disorganized.<\/p>\n
Many of them have been used to borrowing large sums of money
\nwithout an adequate amount of equity capital. When turmoil
\noccurs, like what is happening now, their debts will immediately
\nturn bad and they will find it difficult to solve the debts,
\nexcept when their foreign creditor banks write off most of the
\nloans. The banks surely will not do so. When negotiations are
\ndeadlocked, they will seek a collective solution under the
\ncoordination of Radius.<\/p>\n
Q: Do you think such a collective approach is sound and will be
\nable to solve the debt problems?<\/p>\n
K: Not at all. A debt deal is an individual transaction. If
\nbusinessman Ciputra, for example, borrows money from Citibank,
\nthe bank will find it difficult to negotiate with third parties
\nunder the coordination of Radius, even though the government's
\nconsultant is a figure of high reputation.<\/p>\n
According to me, such an approach will never solve the problem
\nbut will create a bad image that Indonesia's big businesspeople
\napparently have a \"gang-fighting\" mentality, just like high
\nschool students involved in brawls.<\/p>\n
Q: Why have large and giant conglomerates not reached an
\nagreement?<\/p>\n
K: Many giant companies and conglomerates are determined not to
\nrepay their debts, partly due to the fact that foreign banks and
\nfund managers have aggressively offered them short-term credits
\nto finance long-term projects. These are what we recognize as
\nevergreen short-term credits -- which can be rolled over before
\ntheir maturity dates.<\/p>\n
If the creditor banks do not want to roll the loans over,
\nthere will be other banks which will offer new loans for the
\nrepayment of the existing debts.<\/p>\n
Q: Why have many foreign banks generously provided large credits
\nfor Indonesian companies?<\/p>\n
K: Before the economic crisis, many economists throughout the
\nworld, including those from the World Bank and the International
\nMonetary Fund (IMF), considered Indonesia a miracle economy with
\nvery strong fundamentals.<\/p>\n
When the crisis occurred, they started scrutinizing the
\neconomy with deep and sharp analyses. They found out that the
\nIndonesian economy is a bubble and they, therefore, were
\nsurprised, disappointed and panicked. If they are then attacked
\njointly by conglomerate owners under the coordination of Radius,
\nwho has been appointed by President Soeharto, they will feel more
\nconfused and will not know what they should do.<\/p>\n
Q: What impact will such an approach have on the macroeconomy?<\/p>\n
K: For 30 years since 1966, Indonesia's foreign exchange reserves
\nhave been based merely on foreign capital inflows from the
\ncapital accounts, except in 1973, 1979 and 1980. As long as the
\nprivate sector has not repaid their huge debts, foreign capital
\ninflows will be stopped. The IMF and a number of countries,
\ntherefore, are providing substitute funds of up to $40 billion.
\nThat means the short-term solution has been anticipated. In the
\nlong-term, the discipline of private sector companies in repaying
\ndebts is vital for the sake of the country's macroeconomy.<\/p>\n
Private firms -- Page 10<\/p>", "url": "https:\/\/jawawa.id\/newsitem\/collective-solution-to-debt-problems-ineffective-1447893297", "image": "" }, "sponsor": "Okusi Associates", "sponsor_url": "https:\/\/okusiassociates.com" }