Freeze to debt servicing proposed

JAKARTA (JP): The government proposed yesterday a temporary halt in servicing Indonesia's huge foreign corporate debt in a bid to ease pressure on the beleaguered rupiah to allow time for negotiations.

The government-appointed team to tackle corporate debt said the sharp decline of the rupiah against the U.S. dollar had made it increasingly difficult for Indonesian companies to service their external debts.

It became increasingly important that a strategy be developed to restore relations between local corporations and their foreign creditors, the team chairman, Radius Prawiro, said.

Radius said the disorderly situation was unsustainable. "Consequently, a temporary pause in foreign currency debt servicing (is needed)."

The country's huge corporate debt, estimated to be US$66 billion at the end of last year, of which about $10 billion is due by March, has been seen as the main reason behind the sharp depreciation of the rupiah.

The rupiah strengthened to 11,000 to the dollar yesterday from Monday's close of 12,250. The rupiah nose-dived to 17,000 last Thursday, representing a 80 percent drop in value since early July.

Radius said in a media statement the delay would only affect financial loans (bank loans, bonds, commercial papers and similar instruments). Genuine trade debts would be excluded.

Radius said he had developed a framework to manage external corporate debt, based on a voluntary agreement between borrowers and lenders.

He said a steering committee of creditors and a contact committee of debtors were being prepared to work together to resolve the corporate debt problem, based on a voluntarily agreement between borrowers and lenders.

"The steering committee would consist of senior international bankers from the main creditors' countries, while the contact committee would consist of executives from major local indebted companies," he said at a media conference.

He said Pen Kent, former executive director of the Bank of England, David Brougham, a director at Standard Chartered Bank's Hong Kong office, and Lim Ho Kee, executive vice president and chief executive officer of UBS East Asia, had agreed to help put a steering committee of lenders in place.

Anthony Salim of the Salim Group, The Nin King of the Argo Manunggal Group and Rachmat Gobel from the Gobel electronics giant would assist Radius in forming the contact committee of borrowers.

Radius said the framework would not guarantee the viability of every Indonesian corporation, suggesting that those with no prospects would have to be closed.

"There would be no public sector financing, guarantees or subsidies," he said. "We don't have the ability for such a direct bailout."

Radius said the framework had two principal goals. The first was to maximize the recovery of the lenders' money. The second was to restore the ability of viable corporations to fulfill their commitments.

"The framework should create a 'win-win' situation for debtors and creditors alike, while minimizing the risk for both," he said. Without such initiative, he said, the fate of the rupiah could continue to deteriorate to the detriment of both sides.

While some analysts and economists regarded the delay as a debt moratorium, Radius disagreed saying, "I don't think we need to talk about a moratorium."

"We need the pause to enter into a new arrangement," he said, pointing out that each company had varying abilities to service their debts and to get business moving.

Radius said his team had identified 228 companies which had trouble servicing their debts at the current exchange rate.

"We're not talking about months or years here," said Anthony, referring to the length of time for the debt-service delay.

Anthony said companies which were able to service their debts would not have to participate in the framework.

"It will be business as usual for them," he said. Hopefully, these companies would be able to participate in the international debt market again and restore confidence in the country's battered currency, he said.

"This is what the government is trying to do, to stabilize the exchange rate. Once this is done, more companies will be in a better situation," he said.

Kent said he expected the freeze to last about three months, in which the first phase would be more in the form of getting lenders and borrowers together to come out with more detailed information.

"But during that period, some borrowers will be able to service their debts," he said.

"In my experience with debt workouts... I believe this (framework) is going to work because of the best commercial interest of both lenders and borrowers.

"They have to realize the current situation. It is better to face reality and find an orderly and constructive mutual burden sharing way to deal with," Kent said.

He said without the framework, everybody would lose.

Radius said Kent had met with several foreign bankers in Jakarta yesterday and would proceed to Singapore to meet top regional international bank executives there.

Radius said his team would meet with executives of indebted local firms after the Moslem Idul Fitri holiday, possibly next week.

He said more details about the Indonesian foreign corporate debt would be disclosed after the meeting. (08/rid)

Related stories -- Page 8