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.