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)