RI, creditors strike private debt deal

RI, creditors strike private debt deal

FRANKFURT (Reuters): The Indonesian debt negotiation team and
the country's creditor banks said yesterday they had reached
agreement on a comprehensive program to address Indonesia's
external debt problems.

The program comprises three initiatives relating to private
sector corporate debt, external credit to the Indonesian banking
system and trade finance, the two sides said in a statement.

They said the corporate debt arrangements envisaged the
creation of an Indonesian Debt Restructuring Agency (INDRA),
fully backed by the Indonesian government and administered by the
central bank, Bank Indonesia.

INDRA will provide exchange rate risk protection and assurance
as to the availability of foreign exchange to private debtors
that agree with their creditors to restructure their external
debt for a period of eight years, with three years of grace
during which no principle will be payable.

Participants in INDRA will be entitled to buy U.S. dollars at
the best real 20-day average market exchange rates occurring from
the date the program becomes operational until June 30, 1999.

They also said that if the rupiah appreciated in value by the
second anniversary of the program, debtors would be entitled to
the benefits of the improved exchange rate for the remainder of
the arrangement.

INDRA offers important relief to debtors without involving any
subsidy or assumption of commercial risk by the Indonesian
government.

Participation in INDRA is voluntary and requires the consent
of both debtors and creditors. It offers incentives for debtors
signing on before the end of January 1999.

"The INDRA program provides a framework to be used on a case-
by-case basis for the restructuring of corporate debt," they said
in a statement.

Glenn Yusuf, director general of financial institutions at the
Indonesian Ministry of Finance, said here yesterday that he
believed INDRA would be strong enough to withstand fluctuations
in the rupiah's exchange rate against the dollar.

He told a news conference he expected INDRA would receive
sufficient rupiah funding to have surpluses.

He added that, given that the rupiah was at present
undervalued and was likely to strengthen through adherence to IMF
reforms, the INDRA fund would have "enough strength to withstand
fluctuations of the rupiah-dollar exchange rate."

He said earlier that an agreement between Indonesia and its
creditor banks would take effect on about August 1.

Head of Indonesia's debt settlement team Radius Prawiro said
here the agreement should expedite the country's economic reform
and the solving of the huge private external debts.

Coordinating Minister for Economy, Finance and Industry
Ginandjar Kartasasmita said in a teleconference call from Jakarta
that the agreements laid the basis for invaluable support for
Indonesia's economic recovery.

"The agreements reached between Indonesia and its Bank
Steering Committee demonstrate both support for and long-term
confidence in the Indonesian economy," Ginandjar said.

Asked how he foresaw the market's reaction to the agreements,
he said: "We hope the market will react positively to the
agreements."

Speaking on the second element of the program, Ginandjar said
the maturity of external, nontrade related liabilities of
Indonesia's commercial banks, falling due through March 31, 1999,
would be extended for up to four years.

Indonesia banks would offer to exchange for these liabilities
new loans, guaranteed by Bank Indonesia, with maturities of one
to four years.

"The extension of these maturities will create a manageable
repayment profile for the external debt of the banking system and
substantially aid Indonesia's balance of payment," Ginandjar
said.

On trade financing, Ginandjar said Indonesia would shortly
request trade creditors to "undertake for a period of one year to
use their best efforts to maintain trade finance at levels
existing at the end of April 1998".

He reiterated that trade credits would be fully guaranteed by
Bank Indonesia.

"This facility will help reverse the decline in trade finance
and provide vital support to the Indonesian economy," he said.

All parties to the negotiations, including the International
Monetary Fund, the World Bank and the Asian Development Bank,
considered that the program provided a "constructive basis for
the resolution of Indonesia's external debt problems which should
alleviate the pressures on foreign exchange markets and produce a
significant improvement in the Indonesian economic situation".

Welcoming a debt deal between Indonesia and its creditors, the
IMF said yesterday it would next review its lending program to
the country on June 8.

"An IMF staff team will conduct discussions on the second
review of Indonesia's IMF stand-by program with the Indonesian
authorities in Jakarta, beginning next Monday, June 8," IMF
managing director Michel Camdessus said in a statement.

The World Bank welcomed yesterday the debt deal between
Indonesia and creditor banks and said it would help the agency to
consider providing $1 billion to Indonesia in the next two weeks.

In a statement from Washington, World Bank vice president for
East Asia and the Pacific Jean-Michel Severino said the agency's
Indonesia country team was preparing a full review of the
country's situation.

"The bank's board could consider early release of up to $1
billion in further lending to Indonesia after completion of this
assessment, perhaps in the coming two weeks."

The chairman of the Indonesian Chamber of Commerce and
Industry, Aburizal Bakrie, hailed the agreements which he said
could serve as a "benchmark" for both debtors and creditors alike
to settle the debt hangover.

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