Singapore's $5 billion loan to be at 'commercial' rate
Singapore's $5 billion loan to be at 'commercial' rate
SINGAPORE (Reuters): Singapore pledged yesterday to help support Indonesia through its financial troubles but said its promised loan of up to US$5 billion would be offered at commercial rates of interest.
Finance Minister Richard Hu told parliament the previously announced loan was a back-up facility to support the Indonesian economy and would only be drawn down if other loans from various international financial institutions had been exhausted.
He said the loan would be offered for up to five years in tranches of US$1 billion each to be drawn at the request of the Indonesian government. It would be offered at the Singapore Bank Offered Rate (SIBOR) for six months plus a premium.
He declined to say what that premium would be.
"It is a commitment. It is not giving. It is not a gift. This is a commercial loan attracting commercial interest rates," Hu said. He said if the facility was drawn down, it would have to be repaid after five years or earlier.
He stressed the loan would not be used unless what he called Indonesia's "frontline defense" financial assistance of US$23 billion from the International Monetary Fund, World Bank and Asian Development Bank had already been used up.
"If it is drawn down it is to be used as if it were part of the Indonesian government's reserves," he said.
He said there was little risk of the money being lost and stressed any loans would remain part of Singapore's foreign assets.
"There is every likelihood that there may be no need to draw on this supplementary line of defense," Hu said.
He said Singapore was also collaborating with the Indonesian government to intervene in currency markets to support the Indonesian currency, the rupiah.
"The fall in the value of the rupiah has been excessive and could jeopardize the successful implementation of (Indonesia's) economic reform program," he said.
"Therefore (Singapore and Japan) have agreed to collaborate with the Bank of Indonesia through joint intervention in foreign exchange markets to promote the strengthening of the rupiah to levels consistent with Indonesia's economic fundamentals.
"The amount of our intervention is not predetermined and will depend on developments in the foreign exchange markets," the minister said.
Answering questions in parliament on why Singapore, a tiny island state of only three million people, had made such a large financial commitment to Indonesia, Hu said Singapore was affected by the well-being of its neighbors.
"It is in our interest to do what we can to maintain the economic and financial stability of the region," he said. "The recent currency turmoil has revealed the close interdependence of the economies of this region."
"The health of the Indonesian economy is critical not only to Singapore but also to the overall prosperity of the region. The restoration of investor confidence in Indonesia will help stabilize regional financial markets. Singapore will benefit when Indonesia's economy recovers and resumes strong growth."