Japanese bank proposes debt-servicing fund

Japanese bank proposes debt-servicing fund

TOKYO (Agencies): Bank of Tokyo-Mitsubishi Ltd (BTM) said
yesterday it was proposing to the Japanese and Indonesian
governments that they set up a fund to allow Indonesian firms to
exchange the rupiah for the U.S. dollar at a much stronger rate
than the current level.

BTM is one of Japan's largest creditors to Indonesia.

A senior bank official told Reuters that if corporations in
Indonesia are able to exchange the rupiah at around 5,000 to the
dollar, most of them would stay in business.

He said that the fund would enable corporations to sell the
rupiah for the dollar at around 5,000 in order to service their
dollar-denominated debt and to buy the Indonesian currency back
from the fund at the same exchange rate one year later.

A fund worth $10 billion to $15 billion might be needed to
allow Indonesian corporations to hedge their dollar-based debt,
the senior BTM official said.

"Stabilizing the currency rate will be the first priority for
the crisis-hit nation," he said.

Meanwhile a Japanese daily said in Tokyo that the Group of
Seven (G-7) major economies will discuss Tokyo-Mitsubishi Bank
proposal to set up a $10-15 billion foreign exchange
stabilization fund for Indonesia at its meeting in London on Feb.
21.

The Nihon Keizai Shimbun said the step will help alleviate the
foreign debts of Indonesian companies, which are denominated
mostly in dollars, the leading economic daily said.

Japan's Ministry of Finance, Foreign Ministry and Ministry of
International Trade and Industry will send a delegation to
Indonesia and Singapore on Wednesday for discussions on the
economic situation in Indonesia.

The delegation is intended to gather information to help Tokyo
decide what assistance Japan can extend to Indonesia ahead the G-
7 meeting later this month, where the Asian financial crisis is
expected to be discussed.

Japan is Indonesia's largest creditor, with Japanese banks
accounting for 39 percent, or $23 billion, of Indonesia's $58.7
billion in foreign bank debt at the end of June 1997, figures
released by the Bank for International Settlements (BIS) show.

In late January, Jakarta proposed a temporary freeze on
corporate debt service payments and declared it would adopt new
servicing measures and would reform its banking sector.

A voluntary framework for restructuring Indonesia's foreign
private debt has been worked out between Indonesian borrowers and
their creditors. BTM is a member of the lenders' steering
committee.

On Monday, President Soeharto said the government would soon
announce new steps on the exchange rate to keep prices of
priority imports under control and to provide a certain
calculation base for exports.

In a related development, Malaysian Deputy Prime Minister
Anwar Ibrahim said in Tokyo yesterday that Japan is discussing
additional steps to help Indonesia cope with its debt problems
and that he hopes Japan will expand its assistance to Indonesia.

Asked if he was referring to an idea for the governments of
Japan and Indonesia to set up a rupiah stabilization fund, Anwar
told Reuters that the issue was touched on in talks he has held
during a two-day visit to Tokyo.