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.