INDRA, new law 'enough to settle debt hangover'

INDRA, new law 'enough to settle debt hangover'

JAKARTA (JP): The establishment of the Indonesian Debt
Restructuring Agency (INDRA) and the passage of the bankruptcy
law should be enough to contain problems caused by the nations
vast private sector debt, experts said.

But they warned the fashions in which INDRA ran its affairs
and the bankruptcy law was administered would determine the
success of government efforts to deal with the corporate debt
problem.

Economist I Nyoman Moena said yesterday that foreign investors
had generally welcomed the initiatives but were waiting to see
how the government implemented them.

"INDRA and the bankruptcy law are enough to settle the problem
of private debt. The infrastructure is now there, but we are all
eager to see how they work in practice," he said.

Mari E. Pangestu, executive director of the Centre for
Strategic and International Studies, agreed and said: "We are all
waiting to see how they are implemented."

"If they are not implemented well then they will fail to help
businesses restructure," she said.

INDRA started operations yesterday. The agency, set up under
the Frankfurt private debt agreement, is a government institution
under the supervision of Bank Indonesia, the central bank.

Bank Indonesia director Dono Iskandar said INDRA would help
debtors and creditors who were unable to agree on debt
restructuring plans through bilateral negotiations.

The bankruptcy law, which comes into force later this month,
would then serve as the last option for companies unable to
reschedule their debts bilaterally or through INDRA, Dono said.

Dono said he was confident that many creditors and debtors
would agree to join INDRA, which requires all private foreign
debts to be rescheduled over a period of eight years with a three
year period of grace.

The benefits of joining INDRA, Dono said, were that debtors
could then repay their debts to the agency in rupiah, which would
in turn pay creditors in foreign currency.

However analysts and business people doubt that local
corporations will be able to afford to repay foreign debt at the
current rupiah-dollar exchange rate.

Antonio Yongnata of Mashill Jaya Securities said the Rp 13,233
rupiah-dollar exchange rate set by INDRA was too high for
Indonesia's cash-strapped companies.

"Besides, local corporations are also required to pay a
certain premium. How can they pay a premium if they cannot even
service the interest on their dollar debts, let alone repay the
principal," he said.

Dono countered that INDRA's interest rates were competitive
and below the current market rates.

INDRA will charge debtors a basic interest rate of 5.5 percent
per annum plus the inflation rate. But those joining within the
first six month of INDRA's operation will be given an "early
bird" bonus rate of 5 percent.

Dono said that many companies would join INDRA to reduce
dollar demand in the foreign exchange market.

He argued the rupiah would strengthen if a large number of
companies signed up to the scheme. That, he said, was the
ultimate aim of the agency.

However, Manaek Robert L. Toruan, head of the fixed income
desk in Bank Niaga's treasury division, said he doubted if INDRA
alone could reduce pressure on the rupiah.

"The factors affecting the rupiah-dollar exchange rate are
becoming more complicated. You can no longer blame it solely on
the lack of dollar supply or excessive demand. The factors are no
longer economic in nature," he said.

He said INDRA was a good start and should be followed by other
measures to support the rupiah, including ensuring security and
law and order, and reducing political uncertainty. (aly/rid)