Yen debtors count cost of dollar's demise

Yen debtors count cost of dollar's demise

By Tim Cribb

HONG KONG (AFP): China wants to talk to its Japanese creditors, Indonesia is tight-lipped, and Malaysia, a former victim of the consequences of the debt blow-out caused by a high yen, is philosophical.

Yen borrowers are in trouble.

The Japanese currency's surge against the dollar has seriously affected China's ability to repay substantial Japanese loans, senior Chinese economists were quoted as saying by the China Daily on Thursday.

"The rising yen is increasing the pressure on China to pay back the Japanese government loans in yen," said Shi Yonghai, head of the International Trade Research Institute in the Foreign Trade and Economic Cooperation Ministry.

Indonesia and China are the biggest recipients of Japanese aid loans.

China raised the red flag as the yen achieved historic highs this week -- trading as low as 98 yen to the dollar. Since 1979, Tokyo has extended loans to China totaling 1.7 trillion yen, or US$10.9 billion at old exchange rates.

Following the dollar's plunge this week and the devaluation of the Chinese currency at the beginning of the year, the value is $17 billion .

"The Japanese government is aware of the problem and is willing to hold talks on the issue," the China Daily quoted Shi as saying. No response has been forthcoming.

Malaysia, a victim of the last yen surge in the second half of the 1980s, took steps to diversify its sources of foreign borrowing after the yen almost doubled in value between 1985 and 1987.

Chief economist of Arab Malaysia Securities Bhd., Mustaffa Mohamed, said Kuala Lumpur had since taken steps to diversify its borrowings.

"The yen-denominated loans have been reduced to about one- third now from more than half previously," he said, adding that the much reduced yen exposure would lessen the negative impact of the skyrocketing Japanese currency.

In the wake of a sharp surge in the yen, Japan, in January 1987, lowered the interest rate from five percent to four percent to mitigate Malaysia's burden in servicing its yen-denominated loans.

It also agreed to disburse new loans at a special rate of 2.9 percent to help Malaysia refinance then too expensive yen loans.

Since then, Malaysia's loans "have been substantially reduced from a peak of 70 billion ringgit ($27 billion ) in the late 1980s through repayments and pre-payments and refinancing schemes," Mustaffa recalled.

Malaysia hopes to cash in on the higher yen with exports to Japan, many from Japanese-financed companies, which are now more competitive.

But the gains will not offset the loss in the relatively higher import costs for Japanese materials, Mustaffa said.

"On the brighter side, the rising yen may stimulate the second wave of investment into this region when Japanese firms are forced to relocate, just as we had benefited greatly from the high yen in the late 1980s," Mustaffa said.

The governor of Central Bank Indonesia, Jiwandono, said the government's exposure to yen loans was about 42 percent of foreign debt, which totaled $55.03 billion as of March.

He would only say the yen's surge this week has in "some way" affected the country's imports and inflation rate. He declined to elaborate.

A Japanese embassy official said Indonesia's state debt to Japan since 1966 to 1992 reached 2.31 trillion yen, some of which had been repaid.

The official, who declined to give the current debt figure, said the yen surge would not directly affect Jakarta's indebtedness as most of the loans have repayment periods of 30 years, with 10 year's grace.

Only the rich -- like Singapore -- are really laughing. A Finance Ministry spokeswoman said: "We have had no reasons to borrow from Japan or any other country and as such we are not affected by the rising yen."

Window: The rising yen is increasing the pressure on China to pay back the Japanese government loans in yen.