Solution to RI private debt vital: German envoy

Solution to RI private debt vital: German envoy

JAKARTA (JP): Finding a rapid solution for Indonesia's private
offshore debt is of crucial importance in dealing with the
current economic crisis, says Horst Kohler, a special envoy of
Germany's Chancellor Helmut Kohl.

Kohler said yesterday he would propose to Kohl to ask German
banks to contribute constructively to a solution to the foreign
debt problem of the Indonesian private sector.

However, he refused to elaborate what solutions were needed to
help Indonesian companies cope with their offshore debts.

"I'm sorry I cannot elaborate on this point right now," he
said at a media conference held at the German Embassy.

He said such a thing had to be worked out first. "We would not
like to confuse the market."

Kohler, who is president of the German Savings Bank
Association, led a special German delegation comprising Prof.
Claus Kohler, a former board member of Deutsche Bundesbank, and
Klaus Regling, director general of the Federal Ministry of
Finance, to examine and assess Indonesia's economic situation.

The delegation has been in Jakarta since last week to meet
President Soeharto, top government officials, the business
community, and IMF and World Bank officials.

According to the Bank for International Settlements, German
banks were the second largest lenders to Indonesia after Japan,
with loans amounting to US$5.6 billion in mid-1997.

Kohler said it was clear that it was in the interest of
international lenders to be constructive in regard to the
Indonesian private sector overseas debt.

Asked if German creditors would prefer the Indonesian
government take responsibility for the private sector debt, he
said it was not the intention of the Indonesian government to
transform private debt into public debt.

"This is particularly difficult because a large number of
enterprises is involved."

"We welcome that the Indonesian government is currently in the
process of organizing a dialog between borrowers and lenders," he
said in a media statement.

However, he said it was also important to avoid a liquidity
crisis and credit crunch, pointing out that if business
activities came to a halt, it would "harm everything".

"So we think a dialog between lenders and borrowers is the
appropriate way to find a good solution," he said.

Concern over Indonesia's alarming level of short-term private
sector foreign debt has put the rupiah and the stock market under
severe pressure, despite an announcement by President Soeharto on
Thursday of drastic economic reforms, backed by the International
Monetary Fund (IMF).

The rupiah dropped through the sensitive 10,000 barrier
against the U.S. dollar in morning trade yesterday, but
strengthened in the afternoon to close at 9,650. The rupiah has
lost over 75 percent of its value since the monetary crisis first
hit the country in July last year.

Reform

Kohler said the recent economic reforms were bold and
comprehensive. He said a temporary slowdown in economic activity
and an increase in inflation was unavoidable in order to lay a
sound foundation for stability, new dynamism and rising
prosperity for all in the medium term.

"We have no doubt that with reforms, Indonesia will overcome
its problems and will expect the beginning of a new growth cycle
during the course of next year," he said.

However, he stressed that the most important thing in the
immediate future was to stabilize the rupiah and to regain
confidence in the Indonesian economy.

"This requires a decisive and timely implementation of the
program through concrete action. The President has just told me
that the first set of decrees will be announced shortly."

He said the German delegation had been informed the
President's economic team was working on a solution to the acute
liquidity problem in the Indonesian banking sector. "This is
necessary in order to avoid a standstill in economic activity in
particular, in the light of the present rupiah exchange rate,
which is totally undervalued."

He also acknowledged that based on talks with Indonesian
government officials, it might be helpful if Germany provided
concrete assistance in the following areas:

Technical assistance for the preparation of legislation
envisaged in the reform program (for example, a new central bank
law) and strengthening of banking supervision.

Special programs to support small and medium enterprises, in
particular, to contribute to an alleviation of the difficult
economic and social conditions expected in the immediate future.

"The weakness of the banking sector in Indonesia is one of the
most critical in this crisis. There has to be major restructuring
efforts," Kohler said.

He said that since Germany had a well-known central bank, the
Deutsche Bundesbank, it was proper for them to provide technical
assistance and advice. "We are confident that Chancellor Kohl
will offer some concrete proposals to President Soeharto in this
respect."

Asked whether Germany would help out Indonesia's aircraft
industry, which is led by the influential State Minister of
Research and Technology B.J. Habibie, Kohler said, "The project
was never brought up in my talks with the President. And I don't
have a mandate. This is not up to me."

However, he said Habibie had studied in Germany and had a good
relationship with the country. (08)