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.