Private borrowers need debt rescheduling<\/p>\n
The government and major private companies is holding a road
\nshow to creditor countries to seek the rescheduling of the
\nprivate sector's foreign debts. Economist Faisal Basri discusses
\nproblems related to the foreign debts owed by private firms.<\/p>\n
Question: Do you think the road show will help?<\/p>\n
Answer: It will help because the government's concern on debt
\nrescheduling will function like a guarantee. But creditors who
\nface liquidity problems due to economic crises hitting their own
\ncountries, such as Japan and South Korea, will not be able to
\nroll over their loans. They will even demand the acceleration of
\nloan repayment.<\/p>\n
Q: How big is the portion of the domestic borrowers' debts from
\nJapan and South Korea?<\/p>\n
A: As far as I know, Japan has provided total loans of about
\nUS$20 billion for Indonesian companies and South Korea another
\n$12 billion. That is a major part of the private sector's total
\noffshore borrowing of $65 billion as of September.<\/p>\n
Q: How did the private debt increase so rapidly surpassing the
\ngovernment's foreign debt of only $52.3 billion?<\/p>\n
A: Along side the change in trends in the global flow of funds,
\nthe government played an important role in the rapid increase of
\nthe private sector's foreign debt. Some protectionist measures
\nestablished by the government, such as the introduction of
\nprotection tariffs on chemical products similar to those
\nmanufactured by PT Chandra Asri, for example, have made
\nbusinesses in Indonesia very attractive to foreign creditors.<\/p>\n
The State Electricity Company's (PLN) guarantee to buy
\nelectricity generated by private power firms has also attracted
\nforeign creditors to provide loans for them.<\/p>\n
Meanwhile, the global trend indicates that international flows
\nof funds are now dominated by the flow of foreign direct
\ninvestments, followed by investments in bonds and stocks, and the
\nflow of commercial loans for banks. Ten years ago, the flows of
\nfunds were dominated by the flow of commercial loans, followed by
\nloans and grants for governments, then direct foreign investments
\nand other loans and capital, including bonds and stocks.<\/p>\n
Q: Will the private sector's borrowing increase or decrease?<\/p>\n
A: I'm afraid the borrowing will increase further. Even though
\nthe government has rescheduled some of its development projects
\ndue to the monetary crisis, it has allowed private companies to
\ngo ahead with their multibillion-dollar oil refinery projects.<\/p>\n
Businessman Bambang Trihatmodjo, for instance, is constructing
\na $3.2 billion oil refinery in Situbondo, East Java, while tycoon
\nProbosutedjo will construct another refinery worth $2.5 billion
\nin East Java.<\/p>\n
Such projects will increase Indonesia's foreign debt and, in
\nturn, will increase the country's current account deficit.<\/p>\n
Since these projects are related to the government -- their
\nfuel products will be sold to the state-owned oil company
\nPertamina -- their construction should be rescheduled.<\/p>\n
The continuance of these projects will affect business
\nconfidence in the country.<\/p>\n
Q: How many borrowers will need their debts to be rolled over?<\/p>\n
A: About half of them, particularly those whose with huge debts.
\nIn normal conditions, these companies can repay debts with new
\nborrowing by selling commercial papers and promissory notes. But
\nbecause liquidity is very tight, they will not find buyers for
\ntheir commercial papers and promissory notes.<\/p>\n
Q: Do domestic borrowers have to pay more money in rupiah given
\nthe sharp depreciation of the currency against the U.S. dollar?<\/p>\n
A: Yes, for most of them because realizing that the rupiah used
\nto depreciate by less than 5 percent per annum before the start
\nof the monetary crisis in July, they did not hedge their debts,
\nwhich were mostly denominated in dollars even though they were
\nowed by Asian countries.<\/p>\n
Q: What measures should the government take to help domestic
\nborrowers avoid future financial problems?<\/p>\n
A: In the longer term, the government needs to establish a
\ncompetition policy to encourage private companies compete against
\neach other through operational efficiency. In such a condition,
\nonly highly competent companies have the courage to generate huge
\nborrowing.<\/p>\n
In the shorter term, Indonesia should further develop its debt
\ninstruments which are tradable on the secondary market, so that
\ncompanies will find it easier to raise loans whenever they are
\nfacing financial difficulties. (riz)<\/p>",
"url": "https:\/\/jawawa.id\/newsitem\/private-borrowers-need-debt-rescheduling-1447893297",
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"sponsor": "Okusi Associates",
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