RI's foreign lenders to meet on debt terms
RI's foreign lenders to meet on debt terms
PARIS (Bloomberg): Indonesian government officials will meet with the country's foreign creditors on Wednesday to ease terms for repaying billions of dollars in debt, a crucial step toward putting Indonesia's economy back on track.
The U.S., Japan and other lenders will set terms for rescheduling up to $6 billion in debt that matures over the next three years, about $2.2 billion of which falls due this year, according to International Monetary Fund officials. Failure to secure new repayment terms could cause Indonesia's currency and stock market to slide on concern about a possible default.
The IMF, meanwhile, will decide this week when to send a review team to Indonesia, a prerequisite for making its next $400 million loan payment to the country. The Washington-based lender already delayed the payment, originally scheduled for this month, because Indonesia failed to meet a deadline for economic reforms.
"We're hopeful that the discussions will be completed" and produce an agreement on debt rescheduling, said John Dodsworth, the IMF's senior representative in Jakarta. The Paris meeting is due to end late today.
An accord with the so-called "Paris Club" of creditors could boost flagging bank lending and foreign investment and give Indonesia more room to refinance its other debts. It could also help the government reach its target of 4 percent economic growth this year, after zero growth last year and a 13.2 percent contraction in 1998.
"It's important not only to secure the next IMF tranche but also to bolster foreign direct investment inflows," said Anthony Nafte, an economist with Credit Lyonnais Securities Asia Ltd. "Potential foreign investors need the reassurance that the legal and financial institutions are being strengthened."
Approvals for foreign investment in Indonesia fell 74 percent in January from the previous month as political and social instability kept investors away.
Indonesia sank into its deepest recession in decades as the Asian financial crisis of 1997 and 1998 caused the rupiah to lose two-thirds of its value and sent interest rates soaring.
As other crisis-hit Asian countries return to growth, Indonesia -- whose sovereign debt is equal to its entire economy -- still lags behind. Saddled with a budget deficit of $6 billion, the country needs its creditors to extend the deadline for repaying its debts, which will reach $162 billion by year- end.
Today's meeting between Indonesia and its creditors will be the first since 1998. At the last meeting, the lenders agreed to reschedule $4.2 billion in debt, extending the repayment period to 20 years.
Japan, Indonesia's largest sovereign creditor, can't reschedule debt under its own laws. Instead, it's likely to extend new credit to Indonesia to pay off outstanding loans, as it did in 1998.
Indonesian Finance Minister Bambang Sudibyo, who is attending the Paris meeting, said last week the government would be able to implement "most of the measures" the IMF is demanding as a condition for the loan payment.
State Enterprises Minister Laksamana Sukardi said last week that Indonesia has now met all IMF requirements on the rescheduling of $81 billion owed by Indonesian companies, one of the key sticking points with the IMF.
The Indonesian Bank Restructuring Agency said on Monday it has met most of its IMF obligations, including filing bankruptcy cases against four companies and transferring bad debt from PT Bank Mandiri. IBRA also said it plans to sell about a third of PT Bank Central Asia in an initial share sale.
The $400 million IMF payment is part of the lender's $5 billion bailout fund for Indonesia for the next three years.
Investors see the IMF payment as crucial to Indonesia's recovery. The rupiah lost 3.5 percent of its value against the U.S. dollar after the lender said last month it would postpone the payment.