Private foreign debt 'key' to rupiah repair

JAKARTA (JP): The recovery of the tumbling rupiah will depend largely on the handling of the country's huge private debts, analysts say.

The head of ING Barings' regional economic and debt research unit, Chris Tinker, said yesterday confidence in the rupiah -- which has lost more than 70 percent of its value since last July -- would be restored once uncertainties surrounding foreign debts in the private sector were resolved.

"Restoring confidence requires clarification of what is going to be done with the private debts," Tinker said here after attending a conference held by ING Barings.

Without the clarification the "bear rally will continue", he said.

Indonesia's private offshore debts stand at US$65 billion as of last September, accounting for 55 percent of the country's outstanding foreign debt, according to the official estimate.

About $9.6 billion of the total amount will mature by March.

These private offshore debts have been blamed by many as the main cause of the drastic depreciation of the rupiah against the U.S. dollar and the worsening financial crisis.

High demand for the U.S. dollar is caused by, among others, private companies which need to repay their dollar-denominated loans.

Tinker said the biggest problem in coping with the currency crisis was finding an equilibrium where the supply of the dollar meets the supply of the rupiah.

Reform

He said foreign investors also awaited the implementation of economic reforms agreed by the government and the International Monetary Funds (IMF) last week.

Another ING Barings economist, Daragh Maher, said yesterday the IMF reform had restrained a further collapse of the rupiah.

"The rupiah's downslide is temporary," he said. "Without the reform, I believe the rupiah would go down further."

ING Barings' chief strategist for Asia, Paul Schulte, said yesterday that Japan's ailing economy also played a big role in the continuing fall of the rupiah.

"Japan is facing far bigger problems with their foreign debts, about five to 10 times larger than the problems in Southeast Asia."

Schulte said the debt situation in the Indonesian private sector differed from that of South Korea.

Korean companies got their foreign debts channeled through Korean banks, so that the creditors only had to deal with the banks, instead of with their debtors, he said.

"In Indonesia, there are far too many companies that dealt straight with their foreign creditors."

This means companies will have to conduct their own negotiations with the individual creditors, he said.

ING Barings's two-day conference, which ends today, was attended by representatives of foreign and local investors.

Executives of Indonesia's leading companies, including the Lippo Group, PT Matahari Putra Prima, Gudang Garam and PT Telekomunikasi Indonesia, spoke at the conference and gave a general overview of their companies situation to participants.

Schulte said many foreign investors had pulled out of the Asian region, as they had lost large amounts of money in the free fall of currencies across the region.

"Asia is very under-owned in the global market now, most equity investors have pulled out of their investments in Asia."

The IMF package was an important step toward restoring investors' confidence, he said.

"(On a) regional basis, we're encouraged by last week's announcement but investment wise we are still cautious over the situation."

He said the foreign investors wanted their fair share and a chance to be put on an equal footing with their local counterparts, including equal protection in court.

Their foremost criteria to invest in a country were good policies, he said.

"The IMF reform was going along that way."

He said investors were now concerned over solvency parameters more so than earnings and liquidity for investors wanting to invest in the country.

They are interested in companies with good business, future potential and, despite foreign exchange loss, will survive, he said. (das)