RI private debt woes get NY forum

RI private debt woes get NY forum

NEW YORK (Agencies): Talks to free Indonesia's companies from a crushing burden of foreign debt will shift to New York on Wednesday, reuniting many of the global bankers who helped South Korea avert financial crisis in January.

Bankers involved in the negotiations said their initial tasks will be to assess the extent of the Indonesian corporate sector's US$74 billion debt stockpile, and to evaluate the implications of Jakarta's reform package unveiled last week.

But the eventual salvation for Indonesia's corporations, many of which have not serviced their debt because of the Indonesian rupiah's collapse, might rest with a 1983 Mexican program known as "Ficorca," bankers said.

Jakarta has touted the Ficorca model as enabling the Mexican government to assume the foreign exchange losses on private debt but not loans themselves during a 1980s debt crisis in which the currency fell precipitously.

Global bankers seemed receptive to prospects of a "Ficorca- style" program, now that Indonesia has taken steps to promote stability and address structural problems.

The committee will be co-chaired by Bank of Tokyo- Mitsubishi, Chase Manhattan Corp and Deutsche Morgan Grenfell, bankers said. It will also include Bank of America, Citibank, HSBC Holdings, Sanwa Bank, Sumitomo Bank, ABN AMRO, Standard Chartered, Korean Development Bank, Overseas China Bank Corp, and Banque Nationale de Paris.

Bankers warned, however, that the Indonesia negotiations would probably proceed far more slowly than the Korea debt talks, which took about one month for the two sides to agree to exchange short-term bank debt for new paper,

Indonesia's problems are far more complex than Korea's, given Jakarta's faltering efforts at macroeconomic reform, and the debt talks would probably weigh many factors, including public debt and the banking sector.

High on Wednesday's agenda is the need to sift through Jakarta's agreement with the IMF, in which Indonesia listed 117 separate reform measures to revive the battered economy and envisaged a rupiah level of 6,000 to the dollar.

"The first thing to accomplish is to understand the program that has been agreed with the Fund, and understand what steps Indonesia to take, and then to get a handle on the numbers," one banker said.

Other critical questions to be resolved involved how many companies qualify for the plan, and could potentially postpone repaying capital on their debt, and whether some firms should be liquidated.

Bankers warned that several details will need to be worked out to make Ficorca, which itself underwent several reincarnations, work for Indonesia.

'Ficorca was a market-oriented solution to the problems of the Mexican financial sector in the 1980s. What we need now is a market-oriented solution to Indonesia's problems in the 1990s,' said Michael Chamberlin, head of the Emerging Markets Trading Association and one of the top lawyers involved in shaping Ficorca.

The main goal of Ficorca was to relieve companies, at least partially, from their foreign-currency denominated debt by freezing its size in local currency terms.

The program helped restructure about $12 billion in private Mexican debt. Under its guidelines, the debtors were required to reach their own rescheduling agreements with creditors. To receive principal coverage from Ficorca.

To obtain coverage on both principal and interest, the loans needed to be restructured with an eight-year maturity and four- year grace period.

Among those expected to attend the New York talks are Bank Indonesia's Governor Sjahril Sabirin, and Bank Indonesia's Managing Director Miranda Gultom. Also scheduled to attend are Radius Prawiro, the leader of President Suharto's private external debt team, and businessman Anthony Salim, representing Indonesia's corporate borrowers.