RI to opt for Mexican model in debt crisis

JAKARTA (JP): Indonesia is to adopt a revised version of the Mexican model to solve its private sector overseas debt crisis, State Minister of the Empowerment of State Enterprises Tanri Abeng said yesterday.

This would likely include a grace period of a few years and provide an affordable exchange rate for the rupiah against the U.S. dollar, he added.

"We are likely to go for the Mexican model, but certain things need to be adjusted to our conditions and needs," he told reporters yesterday following a meeting between the country's debt settlement team and experts from Japan.

He didn't give further details as the model is still being refined, including through further discussions with the International Monetary Fund (IMF).

The revision was needed because there were differences between the problems in Indonesia and Mexico, he pointed out.

The rupiah has been under severe pressure since July, plunging to its lowest level of Rp 17,000 to the U.S. dollar in January, compared to Rp 2,450 in the precrisis period in July. It is currently trading at about the 8,500 level.

This has caused most indebted companies to become technically bankrupt as their foreign debts surpass their equity. Mexico experienced a similar problem in 1984, Tanri said.

He explained the aim of the model was not just to lessen demand for dollars and thus shore up the ailing rupiah but also to help the private sector resume business to absorb unemployment.

"I think the Mexican model is workable," he said.

Japan has already proposed a similar model, but supported with between $10 billion and $15 billion in cash.

"But it's a short-term loan. This can be used for other purposes," Tanri said.

He stressed, however, that for the model to be workable it was critical to have enough credible information about the debt- ridden companies and in particular their foreign debt structure.

He pointed out, for example, that even if the government managed to stabilize the rupiah at a certain level, some companies might still not have enough liquidity to service their debts.

Grace period

The information would also be needed to decide the length of the grace period, he added.

Data reporting would be a "compulsory requirement," he said, adding that there would be incentives to encourage such reporting. He declined to provide details.

Tanri said that the IMF had given the green light for the government to take initiatives to acquire the needed information.

According to the minister, of the 800 indebted companies only 180 had made such reports as the previous debt-solving scenario was based on a voluntary approach.

In January the government formed an informal debt settlement team headed by former economic minister Radius Prawiro, which promoted a voluntary renegotiation between a contact committee of debtors and a steering committee of lenders.

Radius announced in February that Indonesia's private sector overseas debts totaled more than $68 billion.

Tanri, however, stressed that although the government would take a more active role, it would maintain its non-bailout stance in dealing with the corporate debt crisis.

"The government will not take any credit risk," said Tanri, who is also a member of the economic and monetary resilience team headed by President Soeharto. (08)