Success of foreign debt relief hinges on domestic debt<\/p>\n
JAKARTA (JP): The success of the overseas debt relief scheme
\nsupervised by the Indonesian Debt Restructuring Agency (INDRA)
\nhinges on resolving the problem of domestic debts, according to a
\nBank Indonesia director.<\/p>\n
Miranda Gultom said yesterday that solving the domestic debt
\nproblem was a key step toward dealing with foreign debt because
\nforeign creditors would be unwilling to join the debt relief
\nprogram if local banks did not make a simultaneous effort to help
\nindebted companies.<\/p>\n
\"I've been approached by international banks eager to
\nparticipate in INDRA, but they have all asked me about what is
\nbeing done to resolve the issue of debt owed to local banks...
\nthey don't want to write off any of their loans if local banks
\nare unwilling to do the same,\" she said at a seminar on the
\nprivate sector overseas debt restructuring program.<\/p>\n
INDRA is a government-sponsored agency which was set up to
\nhelp resolve the private sector overseas debt problem by
\nbrokering debt rescheduling over an eight year period, including
\na three year period in which only interest is repaid, and
\nproviding debtors with foreign exchange at a reduced rate.<\/p>\n
The agency became operational on Aug. 3 but no indebted
\ncompanies have yet signed up to the program.<\/p>\n
Local corporations are reluctant to enter the agency's debt
\nrelief program unless overseas creditors are willing to write off
\na significant portion of their debts.<\/p>\n
Miranda said that Bank Indonesia was still seeking an
\nappropriate way to restructure domestic debts and said the
\nimplementation of any such program would take time.<\/p>\n
\"Domestic debt restructuring is a must, but there is no quick
\nfix,\" she said.<\/p>\n
Efforts to resolve the domestic debt problem will focus on
\nnurturing \"viable\" banks capable of financing the cash-strapped
\nbusiness sector. This will enable companies to repay their debts
\nafter they are once again returning a profit, she explained.<\/p>\n
\"The (domestic debt) problem cannot be resolved quickly
\nbecause we have to reform our banking sector first,\" she said,
\nadding that recapitalizing banks and dealing with massive non-
\nperforming loans presented the biggest obstacles to doing so.<\/p>\n
She said international accounting firms are supposed to
\ncomplete audits of all the country's domestic banks by the end of
\nOctober, after which a program to recapitalize banks deemed to be
\nviable would begin.<\/p>\n
She explained that debtors who rely heavily on exporting and
\nthose who employ large numbers of people would be given priority
\nin a planned program to deal with non-performing loans through a
\ngovernment-sponsored asset management company (AMC).<\/p>\n
\"But the AMC will need strong financial backing because of the
\nlarge number of non-performing loans which have to be managed,\"
\nMiranda emphasized.<\/p>\n
Debt Relief<\/p>\n
Meanwhile, Bank Indonesia director Dono Iskandar said that
\nalmost all of the 2,000 companies that have reported the extent
\nof their overseas debts to the central bank would require some
\nform of debt relief from their foreign creditors.<\/p>\n
He explained that 300 companies had started to negotiate debt
\nrelief with their foreign creditors and expected to conclude
\ndeals by December and urged other companies to follow suit,
\nadding that between 50 percent and 80 percent of existing debt
\nwould need to be written off.<\/p>\n
\"Many debtors have broken of communications with their
\ncreditors. That is not good,\" Dono said.<\/p>\n
He explained that for companies to join INDRA, their creditors
\nmust agree to debt restructuring over an eight year period,
\nincluding a three year period of grace in which only interest is
\nrepaid.<\/p>\n
\"If all companies participate in the scheme then I believe the
\nrupiah will strengthen to Rp 4,000 against the dollar and all of
\nour economic problems will come to an end,\" he said.<\/p>\n
He pointed out that a lot of the pressure on the rupiah
\nstemmed from a strong demand for U.S. dollars arising from the
\nneed to repay loans denominated in foreign currencies.
\nApproximately US$33 billion of the private sector overseas debt
\nfalls due this year.<\/p>\n
He explained that if companies joined the scheme and
\nrestructured their debt over an eight year period, including the
\nthree year period of grace, then dollar demand would plunge to an
\nannual level of around $400 million.<\/p>\n
The rupiah has recently strengthened to around Rp 11,125
\nagainst the U.S. dollar from more than Rp 14,000 earlier this
\nmonth.<\/p>\n
Dono said the rupiah strengthened as a result of a decision to
\nroll over $2.9 billion in interbank foreign debts taken last week
\nby foreign creditors.<\/p>\n
\"That is more than 80 percent of our interbank debts and is a
\nsignificant achievement,\" he said, adding that the deal was part
\nof the debt rescheduling agreement hammered out in Frankfurt in
\nearly June.<\/p>\n
The debt was originally scheduled to fall due this year, but
\nhas been exchanged for maturities expiring over one year to four
\nyear periods, he said.<\/p>\n
He explained that interbank debt of $3.2 billion was included
\nin the Frankfurt agreement, not $6 billion as was previously
\nstated.<\/p>\n
\"The earlier figure included interbank debts owed to the local
\nbranches of foreign banks which are not eligible for inclusion in
\nthe scheme,\" he said. (rei)<\/p>",
"url": "https:\/\/jawawa.id\/newsitem\/success-of-foreign-debt-relief-hinges-on-domestic-debt-1447893297",
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