New Indonesia pact still leaves creditors waiting<\/p>\n
HONG KONG (Reuters): Indonesia's new agreement with the
\nInternational Monetary Fund offers little cheer to foreign
\ncreditors waiting to be repaid by the country's borrowers,
\nfinancial sources said yesterday.<\/p>\n
\"People are getting a little jaded by Indonesia. I don't think
\nanyone was paid in the last week from Indonesia and companies
\naren't even paying their rupiah debt,\" said a fixed-income fund
\nmanager in Hong Kong.<\/p>\n
\"And what can people do? There is really no legal structure in
\nIndonesia for people to get their money,\" he said.<\/p>\n
According to Bank for International Settlement figures,
\noutstanding loans to Indonesia from major international banks
\nwere US$58.7 billion by the end of June 1997.<\/p>\n
Unlike in Korea, where borrowing tends to be concentrated
\namong a handful of banks, there are many Indonesian borrowers and
\nmany of these are corporations.<\/p>\n
In a letter of intent signed with the IMF, Indonesian
\nPresident Soeharto drastically revised the economic assumptions
\npresented in the recent budget, agreed to cut subsidies on fuel
\nand other commodities and promised to cut key monopolies, some of
\nwhich favored his children.<\/p>\n
The Indonesian government also reiterated that it would not
\nbail out its debt-ridden companies. Instead, Indonesian firms are
\nexpected to muddle through as they have been, paying debts when
\nthey can and restructuring or rescheduling when they can't.<\/p>\n
Bankers said that many Indonesian firms, burdened by a sharply
\ndepreciating currency, have not been able to pay.<\/p>\n
\"Most of the reform measures were expected,\" a senior analyst
\nat Nomura Securities in Tokyo told Reuters. \"What really is
\nshocking is that (Soeharto) said the government will not bail out
\nthe private sector debt.\"<\/p>\n
Japan banks hold some US$23 billion, or 39 percent, of
\nIndonesia's debt, according to the BIS.<\/p>\n
But John Seel, sovereign analyst at Bear Stearns in Hong Kong,
\nsaid Soeharto was right to steer clear of guarantees.<\/p>\n
\"That's been one of the better parts of Indonesia's policy all
\nthe way through this,\" said Seel.<\/p>\n
\"I think they are happy to let companies default and work
\nthings out with their creditors, which is not great but it is
\nbetter than having the government take on those obligations or
\ndeclare a debt moratorium,\" he said.<\/p>\n
While Japanese banks are most heavily exposed to Indonesia,
\nmany analysts said they are more worried about the exposure of
\nthe troubled Korean banking sector.<\/p>\n
Unlike Japanese banks' exposure to Indonesia, which tends to
\nbe in the form of loans to local subsidiaries of Japanese firms,
\nanalysts said most Korean bank loans were made directly to
\nIndonesian entities.<\/p>\n
\"I think the exposure of the Korean banks is huge. The Koreans
\nwere extremely aggressive around Indonesia in the last two years,
\nwhereas the Japanese were very aggressive four years ago. And a
\nlot of the debt is short-term,\" said the Hong Kong fund manager.<\/p>\n
Bankers said one effect of Indonesia's debt woes is the growth
\nof a distressed debt business in Asia.<\/p>\n
\"A lot of banks, including the Japanese banks, want to dispose
\nof this kind of distressed debt because if they carry it on their
\nbalance sheets they have to fund it at a premium,\" said a
\nsyndicate manager at a European bank.<\/p>\n
He said that while Asian defaulted debt isn't really traded,
\nthere are investors willing to take it with the expectation that
\nat least some of it will be repaid in future.<\/p>",
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