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)