INDRA caps debt conversion rate at Rp 13,233 per dollar

JAKARTA (JP): The Indonesian Debt Restructuring Agency (INDRA) has capped the rupiah exchange rate for the country's corporate debtors participating in the government-sponsored foreign debt restructuring program at 13,233 against the U.S. dollar.

Bank Indonesia director Dono Iskandar said yesterday that the exchange rate, set for this month from the market average over the past 20 days, was the "cap on the exchange rate to be used in the program".

"The rate is expected to improve over the program's period, but it will not worsen," he told reporters following a ceremony to launch the debt restructuring program, which is open for entry for a year-long period from yesterday.

He explained that the exchange rate would be readjusted every month and that there would be a reset in June 1999, in which debtors entering the scheme earlier at higher exchange rates would receive a refund of the difference.

The INDRA debt restructuring program is part of a gentleman's agreement made in Frankfurt early June between representatives of Indonesia's private debtors and foreign creditors. The arrangement allows US$64 billion in private sector overseas debt to be restructured over eight years, including a grace period of three years.

Dono said that both individual debtors and creditors had to first agree to restructure their debt over an eight year period before being allowed to participate in the INDRA scheme.

Under the INDRA scenario, debtors will make monthly installments on their principal and interest in rupiah value, based on a lock-in exchange rate. Also, the central bank will only pay interest in dollars to the creditors during the three- year grace period, he explained.

He admitted, however, that many Indonesian debtors would still find it difficult to pay their debts even at the lock-in exchange rates.

The rupiah stood at 2,450 to the dollar just before the crisis broke and many debts were incurred at this rate or when the currency was slightly stronger. The rupiah is now hovering around 13,000 against the greenback.

"That's why the debtors have to sit down with their creditors and get a haircut," Dono said, referring to a debt reduction.

Dono explained that if about 60 percent of the 2,000 indebted Indonesian companies joined INDRA, the rupiah would strengthen, automatically solving many of the country's economic difficulties, including the huge budget deficit resulting from various subsidy commitments.

He pointed out that a massive $34 billion in debt, including bank debt, was due this year, which had put severe pressure on the rupiah.

The INDRA scheme could lessen the high demand for dollars this year because the debt repayment would be stretched over eight years, while BI would only pay its interest during the three-year grace period, Dono explained.

"So we may only need about $2 billion to $3 billion a year," he said, pointing out that the relatively smaller demand for dollars would help strengthen the rupiah.

He said that if foreign creditors failed to provide a debt reduction, many companies would have no other option but to file for bankruptcy.

"But the bankruptcy option may not be the best alternative since the debtors' assets may be far from enough to cover their debt," he said.

Dono also said yesterday that the central bank had pushed back the deadline for extending the maturities of more than $7 billion in the country's bank foreign debts to Aug. 6 from July 30.

It was the third time BI has pushed back the deadline.

"It was delayed until August 6 because of the complicated nature of the bank debt," he said, pointing out that debt- calculating had been more complicated than anticipated, especially for commercial papers.

The original deadline, as agreed in Frankfurt, was July 15. (rei)