IMF hails RI's foreign debt proposal

JAKARTA (JP): The International Monetary Fund (IMF) has agreed to Indonesia's proposal to use the Mexican model to tackle the massive overseas debt owed by the country's private sector, a Fund executive said yesterday.

The Mexican model could be adopted but it needed to be adjusted to Indonesia's specific conditions, IMF Asia-Pacific Director Hubert Neiss said following a meeting with Vice President B.J. Habibie yesterday.

"It provides some attractions, some attractiveness to creditors and... it limits the financial load of the government, and that is very important," he told reporters, adding that the IMF could provide technical advice and assistance.

He declined to give details.

Neis has been in Jakarta for two weeks leading a team reviewing the government's implementation of the IMF-sponsored reform programs.

Under the Mexican debt-restructuring program in the early 1980s known by its Spanish acronym "Ficorca", indebted companies were given an eight-year grace period, during which firms made interest payments during the first four years and installments on the debt principals in the second four years.

The debtors were also allowed to repay their obligations in pesos to Ficorca, a government institution, which then paid the creditors in dollars.

State Minister of the Empowerment of State Enterprises Tanri Abeng said Thursday that Indonesia had formulated a final scenario to cure the country of its debt hangover, but declined to announce it as it was still being discussed with the IMF.

He, however, said Tuesday that the country would opt for a revised version of the Mexican model in dealing with the debt crisis.

He explained that to implement the model, the team required more information about the 800 indebted companies, especially their debt structure.

Under the previous debt-solving scenario, the debt settlement team headed by former economics minister Radius Prawiro managed to get such information out of only some 180 companies because of the voluntary nature of the program.

The data reporting would now be a "compulsory requirement", Tanri said.

Radius announced in February that Indonesia's private sector overseas debt totaled more than US$70 billion.

Largest exposure

According to the Swiss-based Bank for International Settlements, Japanese creditors have the largest exposure with total lending of more than US$23 billion at the end of June. Germany was second, followed by France and the U.S.

Because of the sharp plunge in the rupiah, which hit its lowest level of Rp 17,000 to the dollar in January compared to Rp 2,450 before the crisis began in July, most Indonesian indebted companies are considered to be technically bankrupt.

A steering committee of lenders meeting in Singapore Wednesday was reported to have proposed a grace period of six months in the payment of debt principal on the condition that interest payments would continue.

Bank Indonesia's Managing Director Miranda Gultom said yesterday in Tokyo that such a short period was not sufficient. Some Indonesian businessmen have proposed a grace period of about four years.

Until now the IMF has avoided any involvement in solving the Indonesian corporate debt issue, but it is now working hard to find ways to solve the problem, which together with restructuring the financial and banking sectors, are seen as key to restoring confidence in the battered economy.

Since March 18, Neiss and his team have been in a marathon meeting with Indonesia's new economic ministerial team reviewing programs in five areas: monetary policy, the banking sector, the budget and subsidies, structural reform, and overseas debt.

The results of the review will be used to decide whether Indonesia is eligible for a second $3 billion tranche of IMF funding, which was delayed due to allegations that Indonesia was not serious about implementing the IMF-demanded reforms.

The country has received the first $3 billion tranche out of the $43 billion bailout fund arranged by the IMF.

Neiss told Habibie yesterday that the review team had made progress and that the negotiations were expected to be completed next week.

He said that it was agreed with the Vice President to provide credit to small and medium-sized businesses as this was considered a very important way to generate jobs.

"I'm very happy that the Vice President will give his full support to all the efforts," he told reporters.

On the issue of subsidies, Neis said that the problem would be resolved in a satisfactory way, adding that in principle, subsidies should be phased out, but this was not a process that could be accomplished overnight.

"Subsidies cannot be abolished quickly, they have to be abolished gradually, including the ones on staple foods," he said. (08/prb)