APP debt restructuring threatens diplomatic furor
APP debt restructuring threatens diplomatic furor
Dow Jones, Jakarta
Asia Pulp & Paper Co. Ltd.'s failure to repay its massive debt is threatening a diplomatic row between Indonesia and 11 foreign governments that are urging President Megawati Soekarnoputri to intervene in the restructuring.
Reaching a debt payback agreement for US$6.5 billion owed by APP's four Indonesian units has become a test case of Jakarta's efforts to reform the country's economy and attract foreign investment, the governments said in a letter sent Monday to Megawati's office.
Until now, the Indonesian Bank Restructuring Agency (IBRA) - which is owed $1 billion by APP and is overseeing the restructuring - has been too lenient on the ailing pulp and paper company, the letter said.
"We advise you to direct your ministers to exercise the closest possible supervision over IBRA to ensure a fair, commercially reasonable and transparent restructuring of APP," the governments, including European states and Canada, wrote to the president.
Export credit agencies of the governments are among hundreds of creditors owed a total $13.9 billion by APP, which is based in Singapore and has operations in Indonesia and China.
International creditors are frustrated at what they say is IBRA's unwillingness to force stringent repayment conditions on APP's owners, Indonesia's Widjaya family, people familiar with the talks say. The Widjayas stopped servicing their debt in March 2001 amid slumping global paper prices.
The governments' letter signals the APP restructuring could break out into a diplomatic row if Indonesia refuses to increase pressure on the company to repay.
"APP's restructuring is of high political importance to Indonesia because of its size and the repercussions on Indonesia's international reputation," the letter said.
An outline debt plan between IBRA and APP signed in December failed to include provisions to force the company to fully repay its debt, and ensure against a further default, the letter added. IBRA has said it wants creditors to agree to the plan by a March 31 deadline.
Export credit agencies of the governments proposed in February an alternative restructuring that would fix tighter controls on APP's cash flow, and allow for a takeover of the four Indonesian units in the event of failure to repay debt in the future.
But IBRA has been reluctant to include these conditions in its restructuring, people close to the talks say.
The governments pointed out to Megawati in the letter that her government would need the cooperation of those export credit agencies to meet its infrastructure spending needs, which are estimated to total $100 billion over the next 10 years.
"Our government agencies have always supported Indonesia's economic development and intend to continue doing so," the letter said. "However, it is likely that a failure to reasonably satisfy the creditors of APP will affect the confidence of future potential investors in Indonesia."