Trust fund proposed to settle private debts

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)