Trust fund proposed to settle private debts

JAKARTA (JP): The Indonesian Chamber of Commerce and Industry (Kadin) has proposed the establishment of a trust fund to help tackle mounting private foreign debts.

The chamber's chairman, Aburizal Bakrie, said Wednesday that the fund would buy commercial papers (CPs) to be issued by local indebted firms at a discount.

"For instance, this trust fund would buy CPs from indebted private firms at a 50 percent discount," Aburizal said after a closed-door meeting with domestic bankers at Bank Indonesia.

"When those issuing companies are capable of paying their obligations, they have to refund the CPs to the fund fully. So the fund could make 100 percent profit for a certain period of time," he added.

He said the fund should be established together with foreign financial institutions from the United States, Europe and Asia, where most Indonesian firms raised offshore loans.

When asked about Bank Indonesia's response to such a proposal, Aburizal said the central bank basically supported it but ruled out contributing any financial help.

If the proposed trust fund could be realized, it would help cash-strapped private firms get badly needed foreign exchange to pay their offshore debts.

Aburizal said the idea of establishing a trust fund was inspired by the 1994/1995 Mexico crisis. The north American country's recovery was helped considerably by a trust fund called Ready Bond.

"Mexico was really helped by Ready Bond in settling its private sector debts because Ready Bond bought CPs issued by indebted private firms," he said.

At Wednesday's meeting, Aburizal said, local corporations also asked for rollover facilities from both local private and state banks and representatives of foreign banks here due to their cash-flow problems.

"That is the important one. The rollover of private firms' debts has been approved by Himbara (the Association of State Banks), Perbanas (the Federation of Domestic Private Banks) and foreign banks here," Aburizal said.

However, he said, neither domestic nor state banks would disburse new loans to private firms which asked for a rollover facility, except companies having capabilities to pay back all their debt obligations.

He said this heartening decision by local state and private banks to rollover private debts would give local firms a good footing when asking for rollover facilities from foreign banks.

The government has estimated that offshore private sector debts stood at US$65 billion as of last September, accounting for 55 percent of the country's outstanding foreign debt.

This private offshore debts have been blamed by many as the main cause of the drastic depreciation of the rupiah against the U.S. dollar and the worsening financial crisis.

The rupiah lost more than 50 percent of its value against the U.S. dollar in 1997.

Aburizal also said Bank Indonesia had promised local corporations that it would continue efforts to help reduce local banks' interest rates to a more acceptable level of around 22 percent to 24 percent.

He said earlier that state banks and some large private banks currently offered loans with annual interest rates of 24 percent to 28 percent, but their availability was limited.

Most banks, however, still offered choking rates of over 30 percent -- a level which severely punishes most businesses. (rid)