No local corporations have joined INDRA yet
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)