(adds reaction)
By Raju Gopalakrishnan
JAKARTA, Jan 27 (Reuters) - Indonesia, battling its worst economic crisis in decades, said on Tuesday that its indebted companies would temporarily halt debt repayments, allowing time for new servicing arrangements to come into place.
It also unveiled broad-brush reforms to revamp its battered banking sector, including a new government agency to nurse banks back to health.
The reforms include government guarantees for depositors and creditors in all the country's commercial banks and opening the sector to foreign ownership.
The dramatic moves were announced as the region was winding down for Chinese New Year and the Moslem Eid al-Fitr holidays. Trading on financial markets was thin but the rupiah strengthened to about 11,100 to the dollar from an opening of 14,000.
The stock market, cheered that some steps were being taken on the estimated $66 billion corporate debt, closed up 0.55 percent at 476.31 points.
The day's events, for the first time in many weeks, took the focus off President Suharto as he struggles with calls to step down at the end of his sixth five-year term in March.
Recent visitors say the 76-year-old president, who has accepted nomination for a seventh term in office, appears in good health and committed to push through reforms agreed with the International Monetary Fund two weeks ago.
The government's apparent backsliding on a previous reform agreement with the IMF last October had sent markets plummeting and threw Suharto's leadership into question.
Standard & Poor's reacted by cutting Indonesia's long-term currency rating to B from BB and said the country's ratings remained on creditwatch with negative implications.
Economic analysts said the debt servicing freeze amounted to a moratorium.
"What we have in mind is a temporary pause, so that we have time to reach an agreement between lenders and borrowers," said Radius Prawiro, a former cabinet minister appointed by Suharto to help resolve the debt crisis.
"It would be most effective if this pause were to start immediately with the expectation that arrangements will be worked out for the resumption of debt service as soon as possible," he said.
"To this end, a structure is being developed to encourage the borrowers to restore debt servicing at the earliest possible date."
A steering committee would include creditor banks such as Union Bank of Switzerland, Standard Chartered, Hongkong and Shanghai Banking Corporation, Bank of Tokyo-Mitsubishi, ABN-Amro, Citibank, Bank of America, Deutsche Bank, Societe Generale and Singapore's DBS Bank and UOB Bank.
While there were no details on how long the freeze would last, Pen Kent, a former director of the Bank of England who is assisting Prawiro, said it would take three months for the steering committee to collect all the necessary data.
However, Kent added healthier companies could resume debt servicing before then.
"It's not a moratorium," he said. "It's not the same for everyone. This is a pragmatic approach to an individual series of deals which will be conducted as fast as possible. Some will take a short while because the problem is not so difficult, some will take longer."
Prawiro said 228 companies were in debt difficulties. These include some of the biggest names on the Jakarta Stock Exchange, which took on foreign debt before the rupiah began a precipitous slide from the 2,400 to the dollar level in July.
Analysts say a vast majority of listed companies in the country have been bankrupt since the rupiah fell below 10,000 to the dollar earlier this month, raising the spectre of mass layoffs and possible social unrest in the nation of 200 million people.
There was no immediate public reaction to the government's wide-ranging moves on debt and banks, with most people in the Moslem-majority nation fasting for the Ramadan month.
Analysts also noted that the government has made no mention of revamping its antiquated bankruptcy law, indicating it wished to postpone the possibility of companies closing down.
"The fear in Indonesia is that there could be very serious social disorder as a result of millions of people being laid off work, and even people who are doing business in Jakarta may not necessarily be immune from that," said Ken Davies, chief economist at the Economist Intelligence Unit in Hong Kong.
But he added of Tuesday's moves: "It's better than doing nothing, which is what they were doing before.
"I am viewing this with cautious optimism rather than euphoria, and I certainly wouldn't view it as having rescued the Indonesian economy from the sort of punishment it's starting to take. Things are going to get worse."
Others were more critical.
"It's as Latin America as Latin America can be without being in Latin America," one analyst said, referring to the failure of countries there to meet financial obligations in the 1980s.
"It would be fair to expect more foreign capital outflows than inflows going forward," said Roy Ramos, head of bank research at Goldman Sachs in Hong Kong. "Debt reschedulings are typically messy, protracted, drawn-out affairs."
But there was a generally positive reaction on the banking sector moves, which include the setting up of the new Indonesian Bank Restructuring Agency (IBRA) to take over the worst hit banks and the removal of barriers to foreign ownership.
Finance Minister Mar'ie Muhammad said the government would issue bonds to fund IBRA, which would take all distressed banks under its umbrella and implement rehabilitation plans either through mergers or restructuring.
"This is about as good as we could have got, particularly on the banking situation," a Western banking analyst said. |
