RI debt talks hinge on trade finance arrears

RI debt talks hinge on trade finance arrears

NEW YORK (Dow Jones): The payment of millions of dollars in trade finance arrears owed to foreign banks by Indonesian banks is key to ongoing debt negotiations between the country and international creditors, bankers say.

Indonesia is just a week away from potentially becoming the first sovereign of the Asian financial crisis to default on mostly trade-finance debts owed to foreign banks. The country's central bank agreed to guarantee the credits in January.

"This was one of the first things creditor banks raised. Before really moving forward, it's expected that they (Indonesians) clean up any arrears,' a banker close to the debt negotiations told Dow Jones Newswires.

On Wednesday, Indonesian officials stressed that the government would settle the arrears, which they estimated at about $500 million.

Bank Indonesia Governor Sjahril Sabirin said the arrears have blocked new credit lines for trade finance, which in turn hurt imports.

Indonesia's decision to deal with the arrears may be the first result of last week's meeting between 13 international banks and a senior Indonesian delegation in New York to deal with the country's US$68 billion of external private debt.

"We decided at the (N.Y.) meeting that you can't address those things (corporate private debt) in a vacuum and that before getting to any substantial progress, they needed to deal with the arrears," the banker said, putting the amount owed closer to $1 billion.

Last Thursday, Indonesia and the banks' steering committee agreed on a general framework to restructure debts owed to foreign creditors by the troubled Asian nation's private sector.

"They (the Indonesians) made a proposal on how they would like to deal with it. We discussed some very general issues, but avoided getting too specific,' a banker familiar with the negotiations said.

The two parties are now tentatively scheduled to meet on May 8-9 in Tokyo to further discuss how to develop the broad framework.

Based on a Mexican program developed in the early 1980s dubbed Ficorca, the plan proposed by Indonesia calls for the government to provide foreign exchange insurance to private companies to lighten, at least partially, their foreign-currency-denominated debt burden by freezing its size in local currency terms.

With bankers stressing that the steering committee isn't limiting its scope to private sector debt, the banks have formed four separate subcommittees to address what they perceive are crucial aspects of the Indonesian crisis.

According to bankers familiar with the proposal put forth at last week's meeting, Indonesia would like to get an agreement on the restructuring of its private debt by June 30.

The following six months would then be considered an entry or eligibility window during which creditors and debtors would voluntarily agree to restructure their debts.

Under the Indonesian proposal, in order for debt to be eligible for the program, creditors would have to agree to restructure the debt with an eight-year maturity and four-year grace period.

The plan calls for Jakarta to guarantee a fixed rate at which companies can exchange rupiah for U.S. dollar to repay their loans.