Indonesia hails Japan's bond guarantee offer

JAKARTA (JP): Minister of Finance Bambang Subianto said on Tuesday that Indonesia would seize the opportunity offered by Japan to guarantee its sovereign bond issue.

He said the Japanese offer was an opportunity to raise funds overseas to accelerate the recovery of the crisis-hit economy.

"But we won't raise more funds than we need," he said on the sidelines of a seminar on debt restructuring.

This is Bambang's first public statement on the offer by Japan to guarantee global bonds issued by crisis-hit Asian countries.

The plan was announced by Japanese Finance Minister Kiichi Miyazawa last week on Malaysia's Langkawi resort island during a finance ministerial meeting of Asia Pacific Economic Cooperation (APEC) countries.

Miyazawa said Japan would partially guarantee bonds issued by Asian governments, in a bid to raise up to 2 trillion yen in foreign funds to help finance the region's economic recovery.

Japan has long been urged to take a more active role in efforts to help the region rebuild its shattered economies. The country has already provided US$30 billion in aid under the so- called Miyazawa Plan.

Bambang said it was premature to announce details of the global bond issue.

"We'll soon make the necessary preparations, including the decision on how much of the funds we need. We really want to use the offer optimally and productively," he said.

Bambang said the government would have preliminary talks with its Japanese counterparts as soon as possible.

Indonesia has been badly hit by its worst economic crisis in three decades. The economy contracted by more than 13 percent in 1998, sending companies into bankruptcy and putting millions of people out of work.

The country will need multi-billion dollar financing to rebuild the economy, particularly its banking industry and real sector. However, Indonesia's low creditworthiness has become a serious obstacle to raising essential overseas funds.

The International Monetary Fund has organized some $43 billion in bailout funds partly contributed by multinational lenders, including the World Bank and the Asian Development Bank, and bilateral creditors, including Japan and other developed nations.

The government is planning to issue domestic bonds estimated to reach between Rp 300 trillion and Rp 500 trillion to finance recapitalization of the banking sector.

Economists and businessmen have said that recapitalizing the banking sector is not sufficient to kick start lending into the real sector which remains saddled with massive local and overseas debts.

The government is still pushing the business sector to reach debt restructuring agreements with creditors

But chairman of the Indonesian Chamber of Commerce and Industry Aburizal Bakrie said that restructuring the real sector was not enough, as ailing industries badly needed a cash input for working capital.

He urged the government to help establish a reconstruction bank. He said such an institution could take the form of a joint- venture bank between a well-recognized international bank and a local bank to allow it to raise funds overseas through the issuance of bonds partly guaranteed by the government.

"The proceeds can be used to provide working capital for viable companies," he said. (rei)