Private foreign debt 'key' to rupiah repair
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)