Greg Earl, Jakarta – Indonesia has secured an agreement with international banks to roll over its $US80bn ($128.8bn) in private sector foreign debt – a development which may help stabilise the ailing rupiah.
The agreement was expected to give Indonesian companies a rollover period of up to three years on debt originally supposed to be repaid over the next year, followed by a further extension of up to five years to allow deferred repayments.
Under the agreement – which was to be announced late last night in Frankfurt – banks would get a shorter period for repayment.
Speaking before the agreement, an Asia Development Bank director, Shoji Nishimoto, said the he also expected that some banks would accept substantial write-offs at the Frankfurt meeting but not necessarily announce them.
Mr Nishimoto also confirmed that the ADB would allow its new loan funds to Indonesia under the IMF package to be used to recapitalise a selected group of up to 20 private banks.
He said bank recapitalisation was an "acute problem" which was the highest priority for the ADB in assisting Indonesia.
Some analysts have argued that the only way to save the country's banking system is for the Government effectively to nationalise it before selling equity to foreign investors.
But Mr Nishimoto's comments indicate that the multilateral lenders are now prepared to allow their funds to be used to bailout a select group of banks in the interests of keeping the economy operating.
Negotiators were due to reveal the details of the foreign debt agreement in Frankfurt last night where government, corporate, bank lender and multilateral agency representatives were meeting.
But the rupiah was showing little positive response late yesterday, trading around 11,500 to the $US which compares with around 8,000 only a month ago before the rioting in Jakarta.
Dow Jones newswire quoted an unnamed Indonesian official as saying that Indonesian banks would get four years in which to arrange a phased repayment of their short-term foreign debt. Companies would get a three-year grace period followed by a five-year repayment period.
The Government was also expected to announce that the borrowers would be able to join a scheme managed by the Indonesian Debt Reconstruction Agency which would make greenbacks available to meet the repayments.
About $US63bn of the estimated $US80bn in corporate foreign debt is held by companies, most of which are now not servicing the debt. The Frankfurt negotiations were also expected to pave the way for international banks to start honoring some letters of credit from Indonesian banks for trade finance.
In a sign of the tight financial environment, some Australian firms in Jakarta say Australian banks have halted any new exposures to Indonesia even if companies are exporting out of Indonesia. A prominent economic consultant Rizal Ramli said this week that falling foreign exchange reserves, a growing Government Budget deficit and lack of capital inflow meant that the economy may not be able to survive more than three months without a change of government.
The Indonesian debt rollover scheme (modelled on a similar arrangement used in Mexico) was made possible after the IMF took an active roll in debt talks in March.