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.