Easing the choking debt<\/p>\n
The government has started to sell to corporate debtors the
\noverall foreign debt restructuring package under the June 4
\nFrankfurt agreement which will become effective early next month.
\nRestructuring the private-sector debt overhang, estimated at
\nabout US$72 billion, including $8 billion owed by banks, is one
\nof the four top-priority policy agendas that have to be
\nimplemented immediately to lead the nation out of its economic
\ncrisis.<\/p>\n
In fact, the huge debts, of which $32 billion are due this
\nyear, have been one of the major factors that triggered the steep
\nfall in the rupiah's exchange rate since late last year when
\ncompanies and banks, concerned about the contagion impact of the
\nmonetary crisis in Thailand, scrambled for dollars to repay debts
\nand foreign fund managers terminated their deals and rushed out
\nof the country.<\/p>\n
As the rupiah fell to as low as 8,000 to the dollar in early
\nJanuary from 2,400 last July, almost all debtors stopped
\npayments. This turned the currency fiasco into a full-blown
\neconomic crisis, with the rupiah losing more than 80 percent of
\nits value as foreign banks stopped all credit lines, including
\ntrade financing, to Indonesia. Most industrial firms which depend
\nlargely on imported materials were forced to either stop
\noperations or slash production.<\/p>\n
It is quite clear, therefore, that the debt restructuring
\npackage under which corporate debt will be rescheduled to eight
\nyears, including three years of grace period, and bank debts to
\nfour years, will have the immediate effect of cooling off the
\ndemand for dollars and eventually stabilizing the rupiah rate.<\/p>\n
The Indonesian Debt Restructuring Agency (INDRA) which runs
\nthe restructuring package for corporate debts -- bank debts
\nsettled under a different modality under the Frankfurt pact --
\nwill guarantee the availability of foreign currency to debtors.
\nThey in turn are obliged to pay in rupiah the interest charges
\nand debt installments to INDRA, at a predetermined but adjustable
\nexchange rate, for the eight-year maturity period.<\/p>\n
The tricky part is that debt settlement under INDRA is
\nvoluntary in nature, based on bilateral agreement between debtors
\nand creditors. The government cannot force borrowers and
\ncreditors to join the Frankfurt debt restructuring pact.<\/p>\n
But there are no better options for cash-strapped Indonesian
\ndebtors, many of which are already technically bankrupt, except
\nfor a small number who do robust export business. The package
\nshould be the most viable one as it will give the embattled
\ndebtors breathing space to repay debts in rupiah within a longer
\nperiod of time.<\/p>\n
Debtors can no longer simply stop paying as they have done
\nsince January. Stubbornly resisting payment will bring debtors to
\nliquidation through the Commercial Court, which will start
\noperations next month under a new, better structured bankruptcy
\nlaw enacted by the House of Representatives yesterday.<\/p>\n
Foreign creditors do not have much better alternatives for
\nrecouping their loans. Dud loans generate no income at all and
\nsettlement under the bankruptcy law, besides being messy and
\ndestroying long-time business relationships, usually recoups only
\na small portion of the total value of loans.<\/p>\n
Theoretically, barring any social and political instability,
\nif most debtors and creditors join the INDRA-administered
\npackage, the pressures for the rupiah will significantly decrease
\nand the currency will eventually stabilize because only the
\ninterest charges will have to be paid within the next three
\nyears. Down the road, a stable rupiah at a reasonable rate will
\nremove most of the economic woes that have virtually been
\nparalyzing business operations, thus improving corporate ability
\nto generate earnings.<\/p>\n
But this benefit will not take place if debtors and creditors
\ndo not agree on the terms of the package, and crucial to such an
\nagreement seems to be a concession on the part of creditors.
\nCreditors should be willing to bear part of the losses suffered
\nby their borrowers as a result of the rupiah collapse by writing
\noff a portion of their loans. This is part of the risk the
\ncreditors must bear as a result of their \"lending spree\" to
\nIndonesia in the early 1990s. Without some write-off, we are
\nafraid many Indonesian debtors who are in a desperate situation
\nmay resort to the messy procedures of bankruptcy at the expense
\nof both parties.<\/p>",
"url": "https:\/\/jawawa.id\/newsitem\/easing-the-choking-debt-1447893297",
"image": ""
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"sponsor": "Okusi Associates",
"sponsor_url": "https:\/\/okusiassociates.com"
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