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."