RI starts repaying overseas loans in rupiah

RI starts repaying overseas loans in rupiah

SINGAPORE (Reuters): The corporate and banking sectors in
Indonesia have begun to repay overseas debt in local currency,
offering foreign lenders either rupiah on time or dollars late,
dealers and analysts in Singapore said.

And sources say some lenders are taking up the offer.

Indonesia's already heavy overseas debt burden has ballooned
in terms of the rupiah due to the currency's 75 percent decline
from 2,400 per dollar in July at the start of the Asian crisis to
10,000 now.

The Indonesian private sector is being crushed under the
weight of this burgeoning debt, and market sources said foreign
banks will now take a risk on the currency rather than wait for
dollars.

"We are seeing a significant amount of Indonesian Banks
settling U.S. dollars due in rupiah," said one Singapore based
analyst.

"Banks have been accepting this and it seems to be gathering
momentum."

"Lenders are simply not willing to wait. When Indonesian
entities, or banks, say you can have dollar's settled tomorrow or
rupiah today, people are opting for rupiah today."

According to the memorandum of understanding drawn up between
the IMF and Indonesia after last week's meetings, the country's
external debt stood at around US$140 billion at the end of last
year, or about two-thirds of gross domestic product (GDP), and of
this some $20 billion was short-term.

Around $65 billion of this lies in corporate hands and there
is around $15 billion of commercial paper.

Sources said only Indonesian banks had been seen doing this,
but in all probability the Indonesian corporates were offering
the same deal to their domestic banks on U.S. dollars due.

"I can tell you this has happened in the case of Indonesian
banks with international banks," said one banking source. "I
can't say whether the Indonesian corporates are doing the same
thing to Indonesian banks."

Sources said the deals were being done at the market and not
historic rate and the vast majority of the rupiah were finding
their way back into the market via spot and forwards.

"Most would want to lock in the U.S. dollar rate and square
the rupiah position off," said another Singapore-based analyst.

"Either on spot or forward and I think that's why spot rupiah
has been under pressure. I can't see offshore parties at this
stage holding an open position in the roop (rupiah)."

Last Friday the rupiah closed at 8,300 per dollar and on
Tuesday it was trading at 10,000, a fall of 17 percent.

Analysts and traders said this whole episode was a dangerous
game and has deep and worrying implications.

"This is not at all positive and what we are talking about
here is credit risk," said one trader at a leading European bank
in Singapore.

"Credit risk will always overrun foreign exchange risk and
that is clearly what is happening now. People are more concerned
about credit risk than foreign exchange risk."

"When it comes to a matter of settling for what you can get
rather than get everything back, in my own mind we are going down
the road to moratorium."