Govt plans to reschedule $300m in commercial debts

JAKARTA (JP): Indonesia plans to negotiate soon with foreign commercial banks on a mechanism to reschedule some US$300 million in government debts due in 2000 and 2001, according to Bank Indonesia director Burhanudin Abdullah.

Burhanudin said on Sunday that the commercial debt deal would be on comparable terms to that reached with the Paris Club of creditor nations last week.

"The deal will be based on a comparability treatment," he told The Jakarta Post by phone.

He said it was custom to maintain the principle that all creditors be treated equally.

Burhanudin said that $70 million was due to be repaid this year, and the remainder next year.

He added that the debt was part of standby loans signed by the government with commercial banks in 1994 and 1995 to safeguard the country's balance of payments.

Burhanudin could not say when the talks would start except that they usually take place after the Paris Club agreement, and a deal was expected to be completed in two to three months depending on the agenda.

He said the commercial debt talks would be made under the framework of the "quasi" London Club, which last year took place in Singapore.

The London Club is an informal body that brings together commercial banks to discuss the rescheduling mechanism for distressed debt. It normally meets once the Paris Club has reached an agreement.

Burhanudin said that most of the government's foreign bank creditors were from Japan.

The government and the Paris Club of 19 sovereign creditors reached an agreement last Thursday whereby some $5.8 billion in debts will be rescheduled to between 11 and 20 years.

The Paris Club said $2.1 billion of rescheduled debts was due this year and the remainder in 2001 and 2002.

"The Paris Club agreement will provide some relief to the state budget and balance of payments to allow the government to focus on accelerating economic recovery," Burhanudin said.

He explained that the debt rescheduling agreement would allow the country's resources and foreign exchange reserves to be used for other "productive" purposes to accelerate economic recovery.

Indonesia has been badly hit by the economic crisis that started in the middle of 1997. There have been signs recently that the economy is starting to recover.

Bank Indonesia expects gross domestic product to grow by between 3 percent to 4 percent this year, compared to a relatively flat growth in 1999 and economic contraction of more than 13 percent in 1998.

Many experts have said that the Paris Club agreement should provide momentum for the government to accelerate economic recovery because the deal should help revive confidence in the economy.

The International Monetary Fund expressed similar confidence late last week and said it was hopeful about disbursing its $400 million in loans to the country later next month.

The fund was scheduled to disburse the loans early this month, but delayed disbursement because the government failed to meet the end-March schedule to complete various economic reform measures.

The government completed most of the crucial reforms on April 8 ahead of the Paris Club meeting, which seems to have pleased the fund. (rei)