Radius heads for Japan for talks with creditors

Mon, 02 Feb 1998 | Source: REUTERS

JAKARTA (Agencies): Presidential finance advisor Radius Prawiro left here Saturday for Japan for talks with creditors about a scheme to reschedule billions of dollars owed by the Indonesian private sector here.

"I will be in Japan for a few days, and what is most important is to encourage the establishment of a 'steering committee' for the settlement of private-sector debts," former finance minister Radius was quoted by the Antara news agency as saying shortly before his departure.

Radius last Tuesday proposed a temporary freeze on the servicing of Indonesian private-sector debts to allow for a breathing space for orderly negotiations between debtors and creditors.

Radius also reiterated that the government would not bail out the non-banking private sector's foreign debt, estimated at more than US$66 billion, but would encourage the establishment of committees representing the debtors and their international lenders to renegotiate payments.

"I hope this steering committee would be composed of senior bankers representing the majority of foreign financial institutions which provided the main loans to the Indonesian private sector," Radius said.

Radius said Indonesian corporates should prepare for the renegotiations by issuing periodical financial reports so that lenders could get "a clear and accurate" picture of their positions.

The more than 80 percent fall of the Indonesian rupiah against the dollar has virtually halted payment of foreign debt interest and principal by much of the Indonesian private sector, officials and international financial agencies have said.

In a related development, Radius announced Saturday further details on the approach that he was taking to address the private-sector's external debts.

He said he had created a team to help him which included Lim Ho Kee who is facilitating contacts with the financial community in Singapore where most of the banks' regional offices are located, and two advisors, Pen Kent and Alberto Mulas.

"At the same time, I am encouraging creditor banks to get together to form a Steering Committee. I understand that discussions are taking place to form such a committee," Radius said in the statement as released to Reuters.

Radius expects that the committee will consist of senior bankers representing major overseas financial institutions with large exposures to the Indonesian corporate sector.

"Let me emphasize, at the outset, that these proposals are intended as general principles to guide relations between creditors and debtors," he added.

He said a framework would, of course, have to be worked out, and decided upon, by creditors and debtors, on a voluntary and case by case basis.

Radius asserted that the cardinal principle for any framework is that all corporations must meet their obligations: those in a position to service their debt must do so; while those that cannot service their debt for the time being must regularize their financial arrangements with their creditors.

"The current disorderly situation is not satisfactory for creditors and debtors alike," he pointed out, adding that a framework needs to be developed to deal with this problem and create a win-win solution.

Otherwise, according to him, the disorder in the market will only intensify, corporations will be unable to survive, and the financial interests of all sides will be harmed.

"I believe, therefore, that creditors and financially distressed corporations should work speedily and in an orderly fashion to regularize their current situation.

It is in this context that I suggested that some time may be needed to allow the creditors and those corporations which are financially distressed to reach an agreement on a case by case basis," Radius said.

He said he also had a technical team working on the inventory of total private corporate debt, which will group borrowers with respect to various categories, such as majority and joint ventures (PMA); and domestic companies (PMDN).

In addition, he said, he and his team are gathering the information necessary to categorize companies into those that are viable and those that are not.

"In particular, it will be important for corporations to publish regular and comprehensive financial statements based on standard accounting principles, and verified by internationally reputed accounting firms," Radius said.

He reiterated the principle that the government will not provide any public funds, guarantees, or subsidies to compensate for losses associated with commercial decisions.

"What the government can do is to strengthen the legal and regulatory framework," he said, adding that the Indonesian government was already preparing measures to require corporations to improve their financial reporting.

He said he would be urging the government to find ways to ensure that both creditors and debtors can enforce their contracts.

"Certainly, if we are to implement the principle that those that can pay, must pay, there must be a mechanism for making sure that they do," he asserted.

Radius expressed confidence that the rupiah will be stabilized rapidly, as the confidence is bolstered by the decisive implementation of the comprehensive program of economic reforms announced on Jan. 15 and the subsequent bank restructuring plan that were supported by IMF and the international community.

The strengthening of the rupiah to a level more closely in line with fundamentals will play a crucial role in alleviating the external debt burden of the corporations and restoring their financial viability, he said.

Debt solutions -- Page 4