RI debt problem will take a year to solve: Banks

RI debt problem will take a year to solve: Banks

SINGAPORE (Agencies): Indonesia's corporate debt problem would take at least a year to solve and not all creditors will be repaid, a spokesman for a committee of creditor banks said in Singapore yesterday.

David Brougham, group executive director of Standard Chartered Bank, said after a meeting between creditor banks and an Indonesian committee that both sides had the appetite to solve Indonesia's debt problem.

He added, however, that the debt package was not a safety net and some Indonesian firms would have to close.

Earlier in the day, Indonesia proposed a voluntary and temporary freeze on corporate debt servicing, effective immediately, until borrowers and lenders could work out an arrangement to resume debt payments.

Indonesia's total external dues stand at $140 billion and analysts have said foreign corporate debt was virtually impossible to pay, given the rupiah's 80-percent drop in value since July.

Jakarta banking sources said the other foreign banks believed to be involved in the Singapore talks were: ABN-AMRO for the Netherlands, Citibank and Bank of America for the United States, Deutsche Bank for Germany, Societe Generale for France, Bank of Tokyo-Mitsubishi for Japan and Development Bank of Singapore and United Overseas Bank for Singapore.

Financial analysts here said Indonesia's proposal to slap a temporary and voluntary freeze on the servicing of corporate debt is about as close to an outright moratorium as you can get.

But it is the use of the words "voluntary" and "proposed" which distinguishes this version of the halting of repayments from a full-scale debt moratorium.

But this is being viewed as the Asian version of moratorium. "What is a 'voluntary framework' when you announce a debt moratorium?" said Chiang Yao Chye, Head of Asia Pacific Research at CIBC in Singapore. "To what extent is it voluntary?"

While the voluntary element exists and companies can still pay back loans if they are able, Indonesia will continue to deny this is in fact a moratorium, analysts said.

"We already had a moratorium in effect...what it does is get us one step closer toward debt restructuring in as much as they are trying to get a framework in place," said Andrew Fung, Regional Treasury Economist at Standard Chartered in Singapore.

In Tokyo, Japan's finance ministry yesterday cautiously supported Indonesia's plans to seek a "voluntary" moratorium of tens of billions of U.S. dollars in foreign debt owed by the embattled country's corporate sector.

"It is strictly on a voluntary, private-sector basis, and future development will depend on how banks and other lenders will react," an official at the ministry's development policy division said.

"As the debt problem has drawn market attention, and that proposal can be a starting point of discussions, we welcome it," he said.

Indonesia's private sector owes some US$67 billion overseas, according to official estimates.

A foreign diplomatic source in Indonesia said private banks accounted for $12 to $13 billion of the total and the remainder was in corporate debt.