Fri, 29 Sep 2000

BI wins debt rollover from London Club

JAKARTA (JP): Bank Indonesia won approval from the London Club of commercial creditors on Thursday to roll over some US$340 million in sovereign debts.

Bank Indonesia director for foreign affairs Nana Supriana said in a press statement that the foreign creditors agreed to extend the repayment date for the debt principal to 12.5 years, with a grace period of three years.

Nana said that the rolled-over debt consisted of $140 million in standby loans obtained in 1994 and a similar $200 million loan obtained in 1995.

The government took the standby loan to safeguard the country's balance of payments. The standby loan was originally due between April 2000 and March 2002.

The central bank, acting on behalf of the government, started debt restructuring negotiations with the London Club in May.

The London Club is an informal body that brings together commercial banks to discuss the rescheduling mechanism for distressed debts.

The signing of the agreement followed an approval by the steering committee of the foreign creditors in June on the Bank Indonesia proposal to roll over the $340 million in sovereign debt to 12.5 years.

The steering committee consists of the five largest creditors, including Bank of Tokyo Mitsubishi Ltd., Industrial Bank of Japan Ltd., Banque Nationale de Paris, Chase Manhattan Bank, and Commerzbank AG.

The agreement reached with the London Club was based on a similar agreement reached by the government in April with the Paris Club of creditor nations to reschedule some $5.8 billion in sovereign debts. The repayment dates, due between April 2000 and March 2002, were rescheduled from 11 to 20 years.

The signing of the debt restructuring deal with the London Club is seen as a positive factor, strengthening the country's balance of payment position and eliminating a previous concern of possible sovereign debt default.

The rupiah strengthened to Rp 8,775 per U.S. dollar from Rp 8,835 late on Wednesday following news of the debt restructuring deal, but the local currency fell back to Rp 8,840 late on Thursday due to domestic political concerns.

Another failure to bring former president Soeharto to court for alleged corruption raised concern that students would return to the streets in massive protests.


Meanwhile, ratings agency Standard & Poor's said Thursday it would upgrade Indonesia's sovereign rating "very soon" after the debt restructuring agreement with the London Club.

"Completion of this means there is no more sovereign debt to restructure," Takahiro Ogawa, S&P's director for sovereign ratings in Asia-Pacific, was quoted by Dow Jones newswire as saying.

S&P will upgrade Indonesia's sovereign rating in the range triple C to single B from the current selective default grade. But the ratings agency wants to see official documentation of the London Club agreement before upping the rating, Ogawa said.

The debt restructuring agreement is also seen helping ease pressure on the state budget, heavily burdened by the country's bank restructuring and recapitalization programs.

The government is also scheduled to meet with its traditional donors grouped in the so-called Consultative Group on Indonesia (CGI) in Tokyo from Oct. 17-18 to seek some $4.8 billion in loans to help plug next year's state budget deficit.

Separately, World Bank Chairman James Wolfensohn reiterated the bank's commitment to continue its support for Indonesia.

Wolfensohn said in a press statement issued Thursday after a meeting with Coordinating Minister for Economics Affairs Rizal Ramli that the CGI meeting in Tokyo would go ahead as scheduled.

The World Bank is the coordinator of the CGI.

The cooperation of the international banking sector came as a relief since the international community had strongly criticized the government over the recent killing of three United Nations humanitarian workers in Atambua, East Nusa Tenggara by pro- Jakarta East Timorese militias. (rei)