Government acts to expedite debt restructuring

JAKARTA (JP): The Jakarta Initiative Task Force will hire 20 foreign experts in June in a bid to accelerate the process of restructuring the country's US$67 billion corporate overseas debt, according to chief operations officer Joseph Luhukay.

"We are running against time to prevent our economy from going bankrupt," he told reporters on Thursday at a discussion on debt restructuring and the Jakarta Initiative.

The Jakarta Initiative Task Force was set up last September with the support of multilateral donors to facilitate the renegotiation of debts between debtors and creditors and encourage out of court debt settlements.

The task force has around US$35 million to finance the two- year program.

Joseph declined to mention the cost of hiring the foreign experts, but admitted it would be expensive.

"They used to get a fee of between 1 percent and 2 percent," he said.

"But they're experienced people and can come up with a (restructuring) solution to a debt case just by smelling it. They also have good access to international lenders like Chase Manhattan Bank," he said.

Restructuring the country's private sector overseas debt is seen as a key step towards economic recovery.

Of the total $67 billion debt, around $24 billion falls due this year. If the debt is not restructured, the demand for dollars will remain high, bringing further pressure to bear on the rupiah. With foreign exchange reserves currently somewhere between US$15.5 billion and $16 billion, Bank Indonesia would be hard pressed to defend the rupiah in the face of any sustained pressure in the money markets.

Joseph said the Task Force had been able to facilitate both restructuring agreements and standstill agreements on some $2.6 billion and Rp 1.9 trillion in foreign and domestic debts.

He added that the Task Force was currently facilitating debt renegotiations involving 181 companies with foreign and domestic debts of $20.8 billion and Rp 11.6 trillion respectively.

"Seventy indebted companies are also waiting for help outside our door," he added.

Joseph said that many foreign creditors were initially doubtful about the Jakarta Initiative, but had now started to show an interest.

"Between 65 percent and 75 percent of the cases we're now facilitating are being pushed in by creditors," he pointed out.

Joseph, however, admitted that debt restructuring had been progressing slowly.

He attributed this to a lack of transparency on the part of debtors and to an unrealistic expectation that the government would bail them out.

"This is slowing down the whole debt renegotiation process," he said.

He added that many local companies had insisted on foreign creditors providing them with working capital once debt restructuring agreements had been reached.

"But that depends on whether foreign creditors trust their local debtors," Joseph added.

"What we need is transparency from both creditors and debtors, just like when you go to a doctor and you have to tell him everything about yourself, including your habits and medical history," he said.

"But we do hope that foreign lenders will start providing local companies with sorely-needed working capital," Joseph added. (rei)