No local corporations have joined INDRA yet
JAKARTA (JP): The Indonesian Debt Restructuring Agency (INDRA) has yet to receive any applications from local debt-ridden corporations to join its debt restructuring program, a Bank Indonesia director said yesterday.
Dono Iskandar said the reluctance was partly caused by a misperception that debtors would be better off entering the program after the rupiah strengthened against the U.S. dollar compared to INDRA's initial exchange rate cap level announced on Aug. 3 when it launched the scheme.
"There have been no applications so far, but this doesn't mean that debtors are not enthusiastic because this kind of process takes time," he told reporters after a meeting with Coordinating Minister for Economy, Finance and Industry Ginandjar Kartasasmita.
He explained that the exchange rate used to convert U.S. dollar-denominated debts into rupiah would be readjusted every month and that there would be a reset in June 1999, in which debtors entering the scheme earlier at a higher exchange rate level would be refunded the difference.
INDRA announced earlier this month its initial conversion rate of Rp 13,233 to the dollar -- a rate many debtors regard as too high.
Under the INDRA scheme, debtors are to pay their restructured external debt to their creditors in rupiah through the agency, which will later pay the creditors in dollars.
Debtors participating in the scheme, however, are incurred an interest rate burden of 5.5 percent per annum plus the rate of inflation.
Many have also been reluctant to join the scheme because of the prospect of being burdened by a punitive interest rate if inflation soars.
Raden Pardede, an economist at state-owned investment bank PT Danareksa, said the workability of INDRA's debt restructuring scheme would partly depend on whether the inflation rate could be held to a reasonable level.
"If inflation is between 100 percent and 200 percent, nobody will be able to pay the interest rate," he told reporters yesterday at a news conference which announced that Danareksa would hold a seminar on INDRA's debt restructuring program on Aug. 26.
The government has predicted this year's inflation rate to top 80 percent. Inflation during the January-July period has already hit 59.1 percent.
Economists
Many economists doubt the government can hold inflation to the target since the 1998/1999 budget will run a huge deficit to accommodate various subsidies, a policy they say will drive inflation beyond the 100 percent level.
"INDRA cannot stand alone because it has to be supported by a good fiscal and monetary policy to prevent an uncontrollable inflation rate," Raden said.
He also said that without a large reduction of their debt obligations, there would be no way debtors could pay back their loans.
"It's just too huge," he said, pointing to the private sector's US$83.6 billion in external debt, including $14.9 billion in short-term debt.
He argued that the country needed a 70 percent cut in its debt obligations in order to maintain enough foreign exchange reserves for four months of non-oil and gas imports.
It is important, however, for the country's corporate debtors to show "a willingness to pay", Raden stressed, because this would be appreciated by foreign creditors.
"I urge debtors to negotiate with their creditors and join INDRA to show that they have the intention to make their payments," he said.
The INDRA debt restructuring scheme is part of the Frankfurt debt agreement struck in June. The program restructures private debts to an eight-year period, including a three-year grace period.
Participation in INDRA requires the acquiescence of individual debtors and their creditors. (rei)