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Web-only Exclusives
November 30, 2000

From Our Correspondent: Hirohito and the War
A conversation with biographer Herbert Bix

From Our Correspondent: A Rough Road Ahead
Bad news for the Philippines - and some others

From Our Correspondent: Making Enemies
Indonesia needs friends. So why is it picking fights?

Asiaweek Time Asia Now Asiaweek story

Dealing with Jakarta's Debt

The IMF plan finally addresses the big problem

By Jose Manuel Tesoro / Jakarta


IT TOOK NEARLY SIX months since Indonesia first called the International Monetary Fund in, but finally the IMF's program has given some priority to the tens of billions of dollars in short-term foreign loans largely to the private sector. Such debt has been the main worry undermining the rupiah (not to mention the baht and the won) since the Asian crisis broke last year. The latest IMF deal, the third attempt which was announced on April 8, includes an appendix on the restructuring of overseas loans to Indonesian banks and companies. It urged, among other measures, that "negotiations between debtors and creditors begin as quickly as possible."

Representatives of the two groups met in New York in mid-April. The private-sector foreign debt was estimated at $73.9 billion at the end of 1997, but $20 billion more may be added to the figure under a new tally being done by the central bank as part of the third IMF package. The rupiah value of those IOUs are up more than three-fold since July, wiping out the assets of most debtors and rendering them technically bankrupt. The chairman of the Indonesian Chamber of Commerce and Industry, Aburizal Bakrie, whose group is reportedly struggling with half a billion dollars in debt, sees two options: "Creditors needing quick cash might agree to debt reduction of up to 50%, but some could wait and expect nearly full repayment."

Efforts to address Indonesia's debt problem were slow; the first meeting between lenders and private-sector borrowers was in late February, several months after its first IMF program was instituted. South Korea, on the other hand, got a debt moratorium within weeks of its bailout in December. Admittedly, it helped Korea's situation that most of its loans were owed by state-controlled financial institutions. Still, Indonesia's second Fund deal signed in January was criticized for largely ignoring the most pressing problems of rupiah free-fall and crushing foreign debt, which by then were dragging down banks and firms.

That previous agreement was sweeping and grand, with lots of policy but little detail. It was a laundry list of reforms long advocated by the World Bank and the IMF. The April plan addresses debt and banking problems directly with specific action. It provides for state financial support to debt restructuring, up to a limit. While the January package referred vaguely to "strengthening the legal and supervisory framework for banking," the new deal sets minimum capital of 250 billion rupiah and makes loan-loss provisions tax-deductible.

The latest program also seems to have a more realistic timeframe, stretching to the end of 1999, compared to the end of April for many of the January prescriptions. But like all plans, the devil is in the implementation. Of the new prescriptions President Suharto has said: "We will carry them out consistently." His government probably realizes that if it fails a third time, confidence may never come back. Still, last week, Jakarta seemed set to break a pledge to lift the export ban on crude palm oil.

SLOWDOWN
Asian Economies and Consumer Prices
The IMF's 1997 data and 1998 forecasts, as of April
GDP Growth Inflation
1997 1998 1997 1998
China 8.8% 7.0% 1.5% 2.0%
Taiwan 6.9% 5.0% 1.1% 4.0%
Vietnam 7.5% 5.0% 3.1% 7.0%
Singapore 7.8% 3.5% 2.0% 2.5%
Hong Kong 5.3% 3.0% 6.5% 4.5%
Malaysia 7.8% 2.5% 2.7% 7.5%
Philippines 5.1% 2.5% 5.1% 8.0%
Korea 5.5% --0.8% 4.5% 10.5%
Thailand --0.4% --3.1% 5.6% 11.6%
Indonesia 5.0% --5.0% 6.6% 44.3%
 


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