No bailout for private debts

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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