Paris Club talks to avoid private debt rescheduling
Paris Club talks to avoid private debt rescheduling
Berni K. Moestafa, The Jakarta Post, Jakarta
The government said it would negotiate with the Paris Club
creditor nations not to extend the rescheduling of its sovereign
debts to its private debts, as it would downgrade Indonesia's
country rating to selective default.
Standard & Poor's warned that rescheduling Indonesia's debts
to private lenders would risk downgrading the country's long term
sovereign debt rating to "selective default."
Indonesia plans to seek the rescheduling of its sovereign
debts with the Paris Club, which in return may demand equal
treatment for the country's private debts.
"We will negotiate not to restructure the private debts," said
Syafruddin Temenggung, deputy minister for International
Cooperation.
Indonesia's current country rating is CCC. The lower the
rating, the higher the perceived risk of Indonesia defaulting on
its debts.
Dropping to selective default status could prompt lending
institutions to charge higher interest rates to reflect the added
risk of investing here.
This would then worsen an already sluggish investment climate,
and discourage foreign investors from coming here.
Coordinating Minister for the Economy Dorodjatun Kuntjoro-
Jakti has since made it one of his priorities to improve the
country's investment rating.
His economic team, which came into office last August, has
managed to improve Indonesia's working relations with foreign
lenders.
But analysts have said the progress of economic reform has
been too slow and, combined with a deterioration in the global
economic climate, made a rating improvement difficult.
According to Bank Indonesia deputy governor Miranda Goeltom,
Indonesia's rating might drop to selective default during talks
with the Paris Club.
"Normally the Paris Club demands that private debt, like
bonds, should receive the same treatment. This is what lowers a
country's rating to selective default according to S&P," she
explained.
But she added that, if Indonesia could convince the Paris Club
not to restructure its private debts, its rating would return to
the previous level.
She said that Indonesia had thus far been able to meet its
bond payment obligations.
Bowing to the Paris Club's demand to defer payment would add
to the risk of non payment for bondholders, hence the lower
rating.
Indonesia's private debts consisted of Euro and Yankee bonds,
which she said were of a relatively small amount.
Elsewhere, Finance Minister Boediono said the Paris Club
meeting was slated for the first week in April.
The Paris Club groups together Indonesia's largest sovereign
creditors. Its upcoming meeting would be the third occasion on
which Indonesia had asked for a rescheduling of its massive
foreign debts.
Securing a Paris Club deal will ease pressure on the state
budget, which must set aside some Rp 43.96 trillion (about $4.2
billion) for foreign debt payments this year.