U.S. bankers caution RI over Mexican model
U.S. bankers caution RI over Mexican model
NEW YORK (Reuters): Indonesia has targeted a Mexican plan to
rescue its indebted corporations, but it will fail unless Jakarta
first adopts rigorous measures to stabilize its currency and
build reserves, U.S. bankers said on Friday.
Indonesia pitched a 1983 Mexican program known as "Ficorca" to
the International Monetary Fund (IMF) to help its companies
handle $74 billion in foreign debt that cannot be serviced with
the rupiah 70 percent below where it stood last July.
But U.S. bankers with extensive experience in Latin America's
restructuring programs during the 1980s and South Korea's debt
exchange earlier this year cautioned that Jakarta should not view
Ficorca as a panacea for its financial crisis.
"Slapping a band-aid on the private corporate sector doesn't
solve Indonesia's problems," said one banker involved in
restructuring talks with Indonesia.
"Some people have all of a sudden seized on a Ficorca-like
program as a magic bullet," he added. "There is no magic
framework that you can take."
The banker said that before Indonesia could tackle its
corporate debt problem, it needed to stabilize its currency,
build reserves, put trade maintenance facilities in place, and
analyze the public sector to determine liabilities.
"You can't just look at this piecemeal. You need to look at it
in its totality," the banker said. "Until you can stabilize the
currency, most anything you try to do is going to be an exercise
in futility."
Another U.S. banker involved in the talks said earlier this
week that Indonesia would not achieve stability unless it
approached bank obligations and public sector debt as well as
corporate debt.
"The rescheduling has to be quite comprehensive," the banker
said. "It has to be viewed on the basis of what are all the
components of a workout plan. You can't take one segment and work
on it."
International banks on the lenders' steering committee met in
Singapore this week to discuss the debt, but "philosophical
differences" have arisen among creditors over how much Jakarta
should be pushed to reform, one U.S. banker said.
"There has to be some sort of consensus built on what is the
appropriate approach to take, and how extensive an approach to
take," the banker said.
In its 1982 crisis, Mexico implemented sweeping programs to
exchange debt for equity and sell off state firms, thus canceling
large amounts of debt. Mexico also managed to stabilize the peso
in 1983, after an 80-percent drop in 1982.
The Ficorca program allowed Mexican companies to repay their
foreign debt in pesos to Ficorca, which then paid foreign
creditors in dollars. The Mexican government technically did not
assume the loans, only the foreign exchange losses.
Ficorca restructured corporate debt to be paid over an eight-
year period, in which firms made interest payments over the first
four years, and began repaying capital after that.
Ficorca eventually covered about $14 billion in foreign loans
taken out by some 1,200 Mexican corporate borrowers.
Bankers said South Korea's resolution of its credit problems
in late February may have lulled Indonesia and its creditors into
a false sense of optimism.
Global banks agreed with Korea to exchange some $24 billion in
bank debt for new paper, thus easing that nation's liquidity
crisis.
But Indonesia's problems are structural, and do not center on
liquidity, which will take far longer to resolve, bankers said.
"This problem is going to take years to fix," one banker said.
"This problem is so much more dramatic than anything that
happened in Latin America in terms of devaluation, financial
sector problems, etc."