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.