Paris Club talks to avoid private debt rescheduling<\/p>\n
Berni K. Moestafa, The Jakarta Post, Jakarta<\/p>\n
The government said it would negotiate with the Paris Club
\ncreditor nations not to extend the rescheduling of its sovereign
\ndebts to its private debts, as it would downgrade Indonesia's
\ncountry rating to selective default.<\/p>\n
Standard & Poor's warned that rescheduling Indonesia's debts
\nto private lenders would risk downgrading the country's long term
\nsovereign debt rating to \"selective default.\"<\/p>\n
Indonesia plans to seek the rescheduling of its sovereign
\ndebts with the Paris Club, which in return may demand equal
\ntreatment for the country's private debts.<\/p>\n
\"We will negotiate not to restructure the private debts,\" said
\nSyafruddin Temenggung, deputy minister for International
\nCooperation.<\/p>\n
Indonesia's current country rating is CCC. The lower the
\nrating, the higher the perceived risk of Indonesia defaulting on
\nits debts.<\/p>\n
Dropping to selective default status could prompt lending
\ninstitutions to charge higher interest rates to reflect the added
\nrisk of investing here.<\/p>\n
This would then worsen an already sluggish investment climate,
\nand discourage foreign investors from coming here.<\/p>\n
Coordinating Minister for the Economy Dorodjatun Kuntjoro-
\nJakti has since made it one of his priorities to improve the
\ncountry's investment rating.<\/p>\n
His economic team, which came into office last August, has
\nmanaged to improve Indonesia's working relations with foreign
\nlenders.<\/p>\n
But analysts have said the progress of economic reform has
\nbeen too slow and, combined with a deterioration in the global
\neconomic climate, made a rating improvement difficult.<\/p>\n
According to Bank Indonesia deputy governor Miranda Goeltom,
\nIndonesia's rating might drop to selective default during talks
\nwith the Paris Club.<\/p>\n
\"Normally the Paris Club demands that private debt, like
\nbonds, should receive the same treatment. This is what lowers a
\ncountry's rating to selective default according to S&P,\" she
\nexplained.<\/p>\n
But she added that, if Indonesia could convince the Paris Club
\nnot to restructure its private debts, its rating would return to
\nthe previous level.<\/p>\n
She said that Indonesia had thus far been able to meet its
\nbond payment obligations.<\/p>\n
Bowing to the Paris Club's demand to defer payment would add
\nto the risk of non payment for bondholders, hence the lower
\nrating.<\/p>\n
Indonesia's private debts consisted of Euro and Yankee bonds,
\nwhich she said were of a relatively small amount.<\/p>\n
Elsewhere, Finance Minister Boediono said the Paris Club
\nmeeting was slated for the first week in April.<\/p>\n
The Paris Club groups together Indonesia's largest sovereign
\ncreditors. Its upcoming meeting would be the third occasion on
\nwhich Indonesia had asked for a rescheduling of its massive
\nforeign debts.<\/p>\n
Securing a Paris Club deal will ease pressure on the state
\nbudget, which must set aside some Rp 43.96 trillion (about $4.2
\nbillion) for foreign debt payments this year.<\/p>",
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"sponsor": "Okusi Associates",
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