No bailout for private debts

JAKARTA (JP): Minister of Finance Mar'ie Muhammad ruled out yesterday any government bailout for offshore private sector debt, totaling US$65 billion as of September.

However, he offered the government's help to lobby foreign creditors to roll over short-term loans.

Speaking at a hearing with the House of Representatives Commission VIII for state budget and finance, Mar'ie also ruled out any rescheduling of the government's foreign debt of $52.3 billion, saying it could tarnish its credibility.

Mar'ie acknowledged that the huge private debt burden was one of the major causes of the current monetary crisis dogging the country.

"We'll try to help them. But the government will never bail out private loans no matter what," Mar'ie told the commission.

If the government bailed out private debt, he said, it could send the wrong signal to businesses and encourage them to recklessly borrow more from offshore sources again.

But Mar'ie said the government had lobbied foreign creditors, especially those in Japan, to roll over their loans to Indonesian firms which faced problems in servicing their debt due to the currency crisis.

It was also in the government's interest to help the private sector roll over its debt so it would not dry up the U.S. dollars in the domestic market, he said. This would reduce selling pressure on the rupiah.

The recent drastic fall of the rupiah, Mar'ie said, was triggered by private sector panic -- with companies entering the currency market at the same time to buy U.S. dollars or hedge their dollar debts.

"If half of the $65 billion in private debt is short-term, with one year or less in maturity, you can imagine how many dollars are needed in a month," Mar'ie said.

The rupiah has lost about 35 percent of its value against the dollar since early July.

The currency crisis should teach private corporations to be prudent in their debt management and to hedge their offshore debts, Mar'ie said.

He said the currency turmoil would also affect Indonesia's capital accounts as capital inflow was expected to drop significantly.

The government projected that the private capital account in the balance of payments would be negative, suffering a deficit of $200 million -- a sharp contrast with an earlier estimate of $10.5 billion in net inflow.

Despite the currency crisis and possible deficit in the overall capital account, Mar'ie said, the government would maintain its free foreign exchange regime, which had been in place for more than 25 years.

Mar'ie also said the government would continue to fulfill its international commitments despite the increasing burden on the state budget.

"The government will not ask for rescheduling (of its foreign debt) because it would send a bad signal to the market," Mar'ie said.

Mar'ie said earlier that every drop of Rp 100 against the dollar would increase the government's foreign debt servicing burden by Rp 500 billion (US$145 million).

"If possible, the government will continue to repay its debt ahead of schedule to boost confidence in Indonesia," he added.

The government said early this year that it had repaid $2.6 billion in foreign debt ahead of schedule since the 1994/1995 fiscal year, saving $1.45 billion in interest payments.

Mar'ie said the government would still disburse loans from multilateral institutions to support its reform program and macroeconomic adjustment, backed by the International Monetary Fund.

This fiscal year alone, the government expects to disburse some $6 billion, out of the committed $18 billion, from multilateral institutions.

Besides multilateral institutions, Indonesia has also got multibillion bilateral loan commitments from Singapore, Malaysia, Australia, China, Hong Kong, Japan and the United States,

To reduce its foreign loan burden, Mar'ie added, the government was currently negotiating swap arrangements with several countries which had committed bilateral aid to Indonesia.

Under such an arrangement, Indonesia would not borrow money but swap its rupiah with U.S. dollars held by countries with loan commitments to Indonesia. Those countries would then hold the rupiah in their accounts.

"Currently, we are still negotiating it. Hopefully, we can complete it soon," Mar'ie said.

"Such a swap arrangement would not add any burden to our foreign debt, which is already quite large," Mar'ie said. (rid)

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