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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