Japanese creditors fret over Indonesia domino effect
Japanese creditors fret over Indonesia domino effect
TOKYO (Reuters): The prospect that Indonesia might declare a debt moratorium is striking fear among Japanese creditors, who hold the lion's share of debt in the Southeast Asian nation.
But what scares them is not so much the amount that Japan is owed by Indonesia, a figure that stood at around US$23 billion as of last June.
What worries them most as the prospect of a debt moratorium looms is that it could deal a wider blow to confidence in the Asian region as a whole.
"The worse-case scenario would be if this triggers a domino effect, killing confidence in the two other Asian nations sharing the same economic plight, South Korea and Thailand," said Takashi Nobehara, general manager of Asian research at the Japan Institute of Research.
"This is a crisis of confidence more than anything else, Nobehara said.
Under a moratorium, a debtor would postpone loan repayments to all creditors in order to guarantee eventual repayment to everyone.
This is not the first time in recent months that talk of an Asian debtor nation freezing its debt repayments has reared its head with big implications for Japan.
In mid-December there were whispers of a possible debt moratorium on South Korea's estimated $171 billion debt -- an indication of the level of consternation about Seoul's currency and banking crisis.
Doubts about Indonesia's readiness to service its crushing debt began swirling in foreign exchange markets on Thursday.
The Indonesian rupiah plunged nearly 30 percent against the dollar after Wednesday's release of the country's 1998/99 budget, which analysts said ignored the need for reform.
International Monetary Fund Deputy Managing Director Stanley Fischer said he considered Indonesia's economy "more worrisome" than South Korea's.
The IMF, which is making $10 billion available to Indonesia as part of a $43 billion international bailout package, is sending a team of officials to Jakarta to see if reforms there can be speeded up.
According to the Bank for International Settlements, Indonesia's total foreign bank borrowings were $58.7 billion as of the end of June 1997.
Japanese banks accounted for 39 percent, or $23 billion, of all international loans to Indonesia in the first six months of 1997.
Analysts said much of Japanese banks' exposure to Southeast Asia was in the form of loans to local subsidiaries of Japanese corporations.
One Japanese banking source who asked not to be identified said about 50 percent of his institution's exposure in Indonesia was to such offshore Japanese borrowers.
And it's not all panic among Japanese corporations with stakes in Indonesia.
On Friday, an official at leading Japanese construction machinery maker Komatsu Ltd. told Reuters it plans to expand the role of its Indonesian and Thai plants as export bases, and has no plans to pull funds out its Indonesian joint venture or to cut jobs there.
A Komatsu spokesman said such a strengthening would help the company cope with economic and currency woes in Southeast Asia.
An official at the Japan National Oil Co., a semigovernmental corporation which has extensive oil development projects in Indonesia, said the current turmoil in Indonesia would not have a direct impact on it.