No bailout for private debts<\/p>\n
JAKARTA (JP): Minister of Finance Mar'ie Muhammad ruled out
\nyesterday any government bailout for offshore private sector
\ndebt, totaling US$65 billion as of September.<\/p>\n
However, he offered the government's help to lobby foreign
\ncreditors to roll over short-term loans.<\/p>\n
Speaking at a hearing with the House of Representatives
\nCommission VIII for state budget and finance, Mar'ie also ruled
\nout any rescheduling of the government's foreign debt of $52.3
\nbillion, saying it could tarnish its credibility.<\/p>\n
Mar'ie acknowledged that the huge private debt burden was one
\nof the major causes of the current monetary crisis dogging the
\ncountry.<\/p>\n
\"We'll try to help them. But the government will never bail
\nout private loans no matter what,\" Mar'ie told the commission.<\/p>\n
If the government bailed out private debt, he said, it could
\nsend the wrong signal to businesses and encourage them to
\nrecklessly borrow more from offshore sources again.<\/p>\n
But Mar'ie said the government had lobbied foreign creditors,
\nespecially those in Japan, to roll over their loans to Indonesian
\nfirms which faced problems in servicing their debt due to the
\ncurrency crisis.<\/p>\n
It was also in the government's interest to help the private
\nsector roll over its debt so it would not dry up the U.S. dollars
\nin the domestic market, he said. This would reduce selling
\npressure on the rupiah.<\/p>\n
The recent drastic fall of the rupiah, Mar'ie said, was
\ntriggered by private sector panic -- with companies entering the
\ncurrency market at the same time to buy U.S. dollars or hedge
\ntheir dollar debts.<\/p>\n
\"If half of the $65 billion in private debt is short-term,
\nwith one year or less in maturity, you can imagine how many
\ndollars are needed in a month,\" Mar'ie said.<\/p>\n
The rupiah has lost about 35 percent of its value against the
\ndollar since early July.<\/p>\n
The currency crisis should teach private corporations to be
\nprudent in their debt management and to hedge their offshore
\ndebts, Mar'ie said.<\/p>\n
He said the currency turmoil would also affect Indonesia's
\ncapital accounts as capital inflow was expected to drop
\nsignificantly.<\/p>\n
The government projected that the private capital account in
\nthe balance of payments would be negative, suffering a deficit of
\n$200 million -- a sharp contrast with an earlier estimate of
\n$10.5 billion in net inflow.<\/p>\n
Despite the currency crisis and possible deficit in the
\noverall capital account, Mar'ie said, the government would
\nmaintain its free foreign exchange regime, which had been in
\nplace for more than 25 years.<\/p>\n
Mar'ie also said the government would continue to fulfill its
\ninternational commitments despite the increasing burden on the
\nstate budget.<\/p>\n
\"The government will not ask for rescheduling (of its foreign
\ndebt) because it would send a bad signal to the market,\" Mar'ie
\nsaid.<\/p>\n
Mar'ie said earlier that every drop of Rp 100 against the
\ndollar would increase the government's foreign debt servicing
\nburden by Rp 500 billion (US$145 million).<\/p>\n
\"If possible, the government will continue to repay its debt
\nahead of schedule to boost confidence in Indonesia,\" he added.<\/p>\n
The government said early this year that it had repaid $2.6
\nbillion in foreign debt ahead of schedule since the 1994\/1995
\nfiscal year, saving $1.45 billion in interest payments.<\/p>\n
Mar'ie said the government would still disburse loans from
\nmultilateral institutions to support its reform program and
\nmacroeconomic adjustment, backed by the International Monetary
\nFund.<\/p>\n
This fiscal year alone, the government expects to disburse
\nsome $6 billion, out of the committed $18 billion, from
\nmultilateral institutions.<\/p>\n
Besides multilateral institutions, Indonesia has also got
\nmultibillion bilateral loan commitments from Singapore, Malaysia,
\nAustralia, China, Hong Kong, Japan and the United States,<\/p>\n
To reduce its foreign loan burden, Mar'ie added, the
\ngovernment was currently negotiating swap arrangements with
\nseveral countries which had committed bilateral aid to Indonesia.<\/p>\n
Under such an arrangement, Indonesia would not borrow money
\nbut swap its rupiah with U.S. dollars held by countries with loan
\ncommitments to Indonesia. Those countries would then hold the
\nrupiah in their accounts.<\/p>\n
\"Currently, we are still negotiating it. Hopefully, we can
\ncomplete it soon,\" Mar'ie said.<\/p>\n
\"Such a swap arrangement would not add any burden to our
\nforeign debt, which is already quite large,\" Mar'ie said. (rid)<\/p>\n
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