Hidden benefit in fresh aid from CGI

Hidden benefit in fresh aid from CGI

PARIS (Dow Jones): Indonesian Coordinating Minister of
Economy, Finance and Industry Ginandjar Kartasasmita said
Wednesday international aid for his country will result in
continuous buying of Indonesian rupiah by the Indonesian central
bank in the months ahead, as that aid is converted from dollars
into local currency.

The Indonesian rupiah might thus appreciate against the U.S.
dollar, as the local currency benefits from quasi-central-bank
intervention.

"There will be continuous purchase of rupiah in coming months
-- it won't be intervention, but it might have the same effect,"
Ginandjar told reporters.

Ginandjar said donors who make up the Consultative Group on
Indonesia will pledge $6 billion to $8 billion in aid for the
year to end March 31, 1999, at the end of a two-day meeting in
Paris Thursday.

That money will be in addition to $6.2 billion in new loans
from the International Monetary Fund and other international
lenders that were approved in mid-July.

Ginandjar said "$8.5 billion (in aid) will entirely be used to
fill the budget hole. With the dollars, we will buy rupiah from
the bank of the Indonesia, which in turn will buy rupiah on the
market," he added. He reiterated the government's target of Rp
10,000 to the dollar by end-March 1999.

Ginandjar also confirmed that a meeting by creditor nations to
reschedule Indonesia's sovereign debt has been postponed until
Sept. 22.

Ginandjar met with Paris Club President Francis Mayer this
week in Paris, for what Ginandjar terms, "consultative meetings."

He added that the September debt rescheduling meeting "will be
a Paris Club meeting, but it won't be a formal meeting." In other
words, Indonesia is expected to continue to make debt service
payments up to and past the debt rescheduling meeting.

Commenting on the World Bank's projection that Indonesia's GDP
will fall by 10 percent to 15 percent in the current year,
Ginandjar said, "that is the most logical projection, though one
can never be certain."

The World Bank has also noted that debt rescheduling
agreements for corporate debt is a key factor needed to restore
financial stability to the country.

Ginandjar said he expected the INDRA corporate debt program to
be successful, but said "Since it opens on August 3, I can't
speculate now on the acceptance rate" of creditors and debtors to
the program.

In June, Indonesia signed an agreement with international
banks on an outline on a way to restructure Indonesia's $80
billion in foreign private debt, thus offering some breathing
space to the nation's cash-strapped companies and its shaky
foreign-exchange market.

The pact offers a voluntary program to debt-laden companies
called INDRA under which their obligations will be extended by
eight years and under which they will receive access to dollars
at a locked-in rate. In return, they must resume making loan
payments, which almost all Indonesian companies have ceased
doing.

Indonesian foreign corporate debt is around $64 billion.

Ginandjar admitted that the government doesn't know the level
of domestic corporate debt. "We're just starting to examine that
with the IMF and we don't know the total amount," he said.

Ginandjar noted that much of the aid would go to small, labor
intensive infrastructure projects designed to boost employment in
Indonesia.

That in turn, he hopes will boost confidence a bit in the
country. "We are suffering from a crisis of confidence, which is
reflected in the rupiah's rate against the dollar," Ginandjar
added.

"We hope that a series of good news...will help the rupiah."
The CGI will hold a press conference at 1230 GMT Thursday to
announce the 1999 funding pledges.