RI debt worries not over: Bankers

RI debt worries not over: Bankers

TOKYO (Reuters): Japanese bankers and analysts yesterday welcomed a deal on rescheduling Indonesia's private debt, but said more needed to be done to ensure firms in the crisis-hit Southeast Asian nation could pay back their loans.

"The agreement will speed up the resumption of fund disbursement by the IMF and the World Bank, but it may not be enough to ensure we get funds back," said a senior Japanese bank official who declined to be identified.

"Further measures may need to be considered, but we are prepared to give it some time," he said.

Indonesia on Thursday reached a framework agreement with international creditor banks on the rescheduling of the country's estimated US$80 billion in private-sector debt.

Japanese banks are the largest creditors to Indonesian companies, although commercial banks in Germany, France, the United States and Britain will also be affected by the deal.

The rescheduling scheme comprises initiatives on private- sector corporate debt, external credit to the Indonesian banking system and trade finance.

The scheme, expected to go into effect around Aug. 1, will be available to all Indonesian-owned companies which agree with their creditors to reschedule their debt for eight years, with a three-year grace period on principal repayments.

"Political developments will play a major role in the fate of the deal," an official at another Japanese bank with assets in Indonesia said.

Tomoo Kinoshita, an economist at Nomura Research Institute's Asian Economic Research Group, said: "The deal was a step in the right direction... But there is a risk that some Indonesian companies could drop out because the scheme is likely to call for a heavier repayment burden towards the end of the rescheduling period. "The deal also left open the issue of individual companies' credit risk. Some may need partial debt forgiveness, which will have to be settled in negotiation between creditors and firms," Kinoshita said.

He said Indonesian exporters that were doing well were likely to stay out of the scheme, since to take part would damage their international credibility and impair future borrowing from international banks.

Firms that were effectively insolvent would also remain outside the scheme, he said.

The first banker said the debt deal had provided a basic direction but negotiations with individual companies were going to be very difficult.

"There may be a very limited number of firms who can pay off their debts earlier than the time frame decided, but there are many more firms who aren't even in a position to pay interest let alone think about the principle," the banker said.

Bank for International Settlements data showed Japanese banks had $22.02 billion in claims on Indonesian firms at the end of 1997, compared with German banks' total claims of $6.17 billion, French banks' $4.77 billion, U.S. banks' $4.90 billion and British banks' $4.49 billion.

However, about half of the total loans from Japanese banks were made to Indonesian subsidiaries of Japanese companies, analysts said.

Loan repayments by such subsidiaries were mostly guaranteed by their Japanese parents, they said.

Although European banks' exposure was smaller overall, it was largely made up of loans to local Indonesian firms with no payment guarantees, making their problems as serious as those of the Japanese banks, the analysts said.