Govt has to bail out private debt: Analysts

JAKARTA (JP): The Indonesian government has to bail out the country's corporate foreign debt in a bid to ease the country's currency crisis, economists and analysts say.

Raden Pardede, an economist with state-owned PT Danareksa Securities, said yesterday that bailing out the private sector was a must in coping with uncertainty in the rupiah's value.

"Like it or not, the government will have to make a bailout," said Raden. "The impact (of the debt crisis) on the economy is exponential, not linear."

He said the rescue should have come months ago, "but it's better late than being sorry".

His remark follows last week's statement by chairman of the Indonesian Chamber of Commerce and Industry Aburizal Bakrie that the private sector's overseas debt was virtually impossible to pay off given the continued fall of the rupiah's value.

"There should be a debt rollover," Aburizal said, adding that the private sector needed between 2 and 3 years' time to pay its debt.

Laksono Widodo, an analyst with PT ING Baring Securities Indonesia, also suggested active government intervention.

"With the current exchange rate, the private sector foreign debt has increased fivefold." Indonesia's foreign corporate debt is believed to be at least US$65 billion.

The rupiah closed at 12,250 to the U.S. dollar yesterday, representing a 80 percent drop in value from 2,400 since July.

Analysts said Bakrie's statement was a signal to foreign creditors that the private sector needed more time to repay its debt or opt for a debt moratorium.

An analyst said he believed the government would soon have to bail out some corporate debt to prevent a debt moratorium which would drive the economy into the ground.

Danareksa's Raden said the government must begin the bailout soon or the crisis could become worse. He said that since it was the government who made the policies, it should also be the government who solved the crisis.

He said the country's largest creditors were from Japan, Germany, France and the U.S.

He said there were many models for the government to follow in dealing with the private sector debt, including transforming the private debt into government bonds. "The important thing is that there should be political willingness to do so."

He said there should also be a mechanism for the government bailouts to prevent a "moral hazard". One example of this would be to ask the owners of companies to put up their private wealth as collateral.

The Indonesian government has stated that it will not bail out private companies' foreign debt, which has caused some analysts to predict a debt moratorium.

A Goldman Sachs economist said the country was unlikely to impose a debt moratorium, pointing out that Jakarta could come up with a subsidized exchange rate for companies to help them cope with their foreign debt repayments.

Some have opposed such a government bailout. I Nyoman Moena, a senior banker, is one. "The chance for a bailout is small," he said.

He said the true amount of corporate debt had never been made clear. "They have been asked to be transparent about their debts, but disregard the request. So why should we bail them out?" he asked.

Let there be a debt moratorium with its consequences, he said, so the country could get it over with. "At least then we would know where we're standing."

There have been many proposals for the government's intervention in the debt crisis. The latest include a Morgan Stanley proposal of a $10 billion sovereign bond deal.

Another was the Asia Pacific Economic Cooperation (APEC) forum's recommendation that countries in the grouping which faced economic difficulties to raise funds by issuing bonds which in turn would be guaranteed by wealthier members. Indonesia is a member of APEC.

In Japan, which is Indonesia's largest creditor and aid donor, Vice Finance Minister for International Affairs Eisuke Sakakibara said Sunday that Tokyo and the International Monetary Fund had planned "some sort of measure" this week on Indonesia's financial crisis. (08)