Stanley recommends US$10b bailout for Indonesia

Stanley recommends US$10b bailout for Indonesia

SINGAPORE (Reuters): U.S. investment bank Morgan Stanley has recommended Indonesia issue US$10 billion of long-term bonds to ease short-term corporate offshore debt burdens, the Business Times newspaper reported on Saturday.

It said several international banks have submitted rescue plans to Jakarta in recent weeks but that Morgan Stanley's was being considered more seriously because of its institutional placing power.

A senior team of Morgan Stanley corporate financiers was in Jakarta for meetings with the finance ministry, the paper said.

The proposed debt plan would have two key components, it said.

First, the government would assume about US$10 billion of short-term offshore debt owed by corporates, with debts due within the next six months taken as a priority. The companies would eventually have to repay the debts to the government.

Second, Jakarta would simultaneously issue US$10 billion in bonds to institutional investors globally with the proceeds being paid to foreign banks with huge Indonesian exposures.

The downgrading of Indonesian debt by ratings agencies over recent weeks would likely mean the proposed bond would carry very high interest rates, the paper said.

However, it said Jakarta was likely to be tempted to accept the plan anyway because uncertainty about offshore corporate debt has lain at the heart of the rupiah's recent ravaging on currency markets.

The rupiah crashed to a historic low of 17,000 on Thursday. Repeated central bank intervention dragged it back to 13,000/13,500 in Asian trade on Friday but it slid below 15,000 again in later London dealings.

Indonesian firms are estimated to owe about US$66 billion to foreign banks. About US$35 billion will fall due for repayment in the next 10 months.

The foreign debt mountain overshadowed Indonesia's revised budget this week, which the government had hoped would highlight to international markets its acknowledgement of the scale of the crisis the country faces.