Freeze to debt servicing proposed<\/p>\n
JAKARTA (JP): The government proposed yesterday a temporary
\nhalt in servicing Indonesia's huge foreign corporate debt in a
\nbid to ease pressure on the beleaguered rupiah to allow time for
\nnegotiations.<\/p>\n
The government-appointed team to tackle corporate debt said
\nthe sharp decline of the rupiah against the U.S. dollar had made
\nit increasingly difficult for Indonesian companies to service
\ntheir external debts.<\/p>\n
It became increasingly important that a strategy be developed
\nto restore relations between local corporations and their foreign
\ncreditors, the team chairman, Radius Prawiro, said.<\/p>\n
Radius said the disorderly situation was unsustainable.
\n\"Consequently, a temporary pause in foreign currency debt
\nservicing (is needed).\"<\/p>\n
The country's huge corporate debt, estimated to be US$66
\nbillion at the end of last year, of which about $10 billion is
\ndue by March, has been seen as the main reason behind the sharp
\ndepreciation of the rupiah.<\/p>\n
The rupiah strengthened to 11,000 to the dollar yesterday from
\nMonday's close of 12,250. The rupiah nose-dived to 17,000 last
\nThursday, representing a 80 percent drop in value since early
\nJuly.<\/p>\n
Radius said in a media statement the delay would only affect
\nfinancial loans (bank loans, bonds, commercial papers and similar
\ninstruments). Genuine trade debts would be excluded.<\/p>\n
Radius said he had developed a framework to manage external
\ncorporate debt, based on a voluntary agreement between borrowers
\nand lenders.<\/p>\n
He said a steering committee of creditors and a contact
\ncommittee of debtors were being prepared to work together to
\nresolve the corporate debt problem, based on a voluntarily
\nagreement between borrowers and lenders.<\/p>\n
\"The steering committee would consist of senior international
\nbankers from the main creditors' countries, while the contact
\ncommittee would consist of executives from major local indebted
\ncompanies,\" he said at a media conference.<\/p>\n
He said Pen Kent, former executive director of the Bank of
\nEngland, David Brougham, a director at Standard Chartered Bank's
\nHong Kong office, and Lim Ho Kee, executive vice president and
\nchief executive officer of UBS East Asia, had agreed to help put
\na steering committee of lenders in place.<\/p>\n
Anthony Salim of the Salim Group, The Nin King of the Argo
\nManunggal Group and Rachmat Gobel from the Gobel electronics
\ngiant would assist Radius in forming the contact committee of
\nborrowers.<\/p>\n
Radius said the framework would not guarantee the viability of
\nevery Indonesian corporation, suggesting that those with no
\nprospects would have to be closed.<\/p>\n
\"There would be no public sector financing, guarantees or
\nsubsidies,\" he said. \"We don't have the ability for such a direct
\nbailout.\"<\/p>\n
Radius said the framework had two principal goals. The first
\nwas to maximize the recovery of the lenders' money. The second
\nwas to restore the ability of viable corporations to fulfill
\ntheir commitments.<\/p>\n
\"The framework should create a 'win-win' situation for debtors
\nand creditors alike, while minimizing the risk for both,\" he
\nsaid. Without such initiative, he said, the fate of the rupiah
\ncould continue to deteriorate to the detriment of both sides.<\/p>\n
While some analysts and economists regarded the delay as a
\ndebt moratorium, Radius disagreed saying, \"I don't think we need
\nto talk about a moratorium.\"<\/p>\n
\"We need the pause to enter into a new arrangement,\" he said,
\npointing out that each company had varying abilities to service
\ntheir debts and to get business moving.<\/p>\n
Radius said his team had identified 228 companies which had
\ntrouble servicing their debts at the current exchange rate.<\/p>\n
\"We're not talking about months or years here,\" said Anthony,
\nreferring to the length of time for the debt-service delay.<\/p>\n
Anthony said companies which were able to service their debts
\nwould not have to participate in the framework.<\/p>\n
\"It will be business as usual for them,\" he said. Hopefully,
\nthese companies would be able to participate in the international
\ndebt market again and restore confidence in the country's
\nbattered currency, he said.<\/p>\n
\"This is what the government is trying to do, to stabilize the
\nexchange rate. Once this is done, more companies will be in a
\nbetter situation,\" he said.<\/p>\n
Kent said he expected the freeze to last about three months,
\nin which the first phase would be more in the form of getting
\nlenders and borrowers together to come out with more detailed
\ninformation.<\/p>\n
\"But during that period, some borrowers will be able to
\nservice their debts,\" he said.<\/p>\n
\"In my experience with debt workouts... I believe this
\n(framework) is going to work because of the best commercial
\ninterest of both lenders and borrowers.<\/p>\n
\"They have to realize the current situation. It is better to
\nface reality and find an orderly and constructive mutual burden
\nsharing way to deal with,\" Kent said.<\/p>\n
He said without the framework, everybody would lose.<\/p>\n
Radius said Kent had met with several foreign bankers in
\nJakarta yesterday and would proceed to Singapore to meet top
\nregional international bank executives there.<\/p>\n
Radius said his team would meet with executives of indebted
\nlocal firms after the Moslem Idul Fitri holiday, possibly next
\nweek.<\/p>\n
He said more details about the Indonesian foreign corporate
\ndebt would be disclosed after the meeting. (08\/rid)<\/p>\n
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