Japan Bank Extends Help To Cut Debt

As a Japanese government delegation prepared for a visit to Southeast Asia to discuss ways to help Indonesias ailing economy, a top Japanese bank on Tuesday came up with its own idea of what could be done.

Members of the delegation of officials from Japans finance, foreign and trade ministries have been tight-lipped on the agenda for their trip to Indonesia and Singapore, which begins on Wednesday and will focus on what Tokyo can do to improve the economic situation in Indonesia.

While delegates packed their bags, the Bank of Tokyo-Mitsubishi Ltd (BTM) , one of Indonesia's largest Japanese creditors, said on Tuesday it was proposing the international community set up a fund to help stabilise the rupiah and deal with Indonesia's private foreign debt.

 

"Hopefully, our proposal will become material for discussions to be held at different levels in the coming weeks on solving the regional currency crisis," said a BTM spokesman.

A senior official of Japan's Ministry of Finance (MOF) said the ministry was aware of the BTM proposal, but had not yet decided whether to raise it at upcoming meetings with Indonesian officials.

"We understand other Asian nations are proposing ideas to help out Indonesia. Jakarta also has its own ideas," said another senior MOF official.

Japan is Indonesia's largest creditor, with Japanese banks accounting for 39 percent, or $23 billion, of Indonesia's $58.7 billion in foreign bank debt at the end of June 1997, figures released by the Bank for International Settlements (BIS) show.

In late January, Jakarta proposed a temporary freeze on corporate debt service payments and declared it would adopt new servicing measures and would reform its banking sector.

A voluntary framework for restructuring Indonesia's foreign private debt has been worked out between Indonesian borrowers and their creditors. BTM is a member of the lenders' steering committee.

"Stabilising the rupiah (at a higher level) will be the first priority," a senior BTM official told Reuters.

The rupiah stood at around 7,500 to the dollar on Tuesday morning, down more than 60 percent from its level when Thailand's de-facto devaluation of the baht triggered currency turmoil in the rest of the region last July.

The BTM official said that if corporations in Indonesia were able to exchange the rupiah at around 5,000 to the dollar, most of them would be able to stay in business.

Jakarta's revised 1998/99 budget announced in January was based on an exchange rate of 5,000 rupiah to the dollar, and budgets for this year set by many private corporations have been based on a similar rate.

BTM officials said Indonesian firms could stay afloat if they were provided with U.S. dollars via the proposed fund at a fixed rate, with the condition the transactions were reversed one year later at the same rate.

The fund would also mean firms' demand for dollars for hedging and for interest payments on their dollar-based debt would bypass the foreign exchange markets, curbing frenzied dollar buying that had sent the rupiah plunging, they said.

A fund worth $10 billion to $15 billion might be needed to meet such demand in one year, the officials said.

Just deciding a fixed exchange rate as a reference for the markets would help to stabilise the rupiah, they said.

"In one year's time, economic recovery in Indonesia would hopefully warrant the fixed exchange rate level of, say, 5,000 to the dollar," the spokesman said.

But analysts said discussion was needed on who would shoulder any losses if the rupiah failed to strengthen.

If international institutions were involved in the BTM exchange fund scheme, it could be criticised for the same reasons that killed an Asian fund proposal by Japan's government last September, the analysts said.

Japan had proposed an international fund to supplement International Monetary Fund (IMF) efforts to deal with the region's crisis, but the proposal was withdrawn after being criticised by Western nations as raising moral hazards for debtors.