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.