April 14, 2002	Sunday	Muharram 30, 1423

JAKARTA, April 13: Indonesia is likely to need even more debt restructuring in the years ahead, analysts said on Saturday, just as the ink was drying on the latest multi-billion dollar agreement with the Paris Club of creditor nations.

A $5.4 billion debt rescheduling was announced late on Friday and while universally welcomed in Jakarta, analysts said it was not enough on its own to sustain the cash-strapped nation’s fragile fiscal and overall stability in the longer term.

Indonesia has staggering total public debts of around $136 billion — almost the size of gross domestic product (GDP) — as well as total foreign debt of $140 billion, burdens which have weighed heavily on efforts to rebuild the economy.

Indonesia’s debt level remains huge, unless of course there is a haircut, and with debts nearly the size of its GDP, the positive response it gets (from the Paris deal) will only be temporary, said economist Umar Juoro from private Jakarta-based think tank CIDES.

The way I see it there will be a fourth and fifth Paris Club, he told Reuters, predicting further debt restructurings ahead.

Friday’s deal was already Indonesia’s third since the world’s most populous Muslim country was hit hard by the Asian economic crisis in the late 1990s and it was the first to cover interest as well as principal.

After two days of talks in Paris with Indonesian negotiators, creditors said they had agreed to reschedule Indonesian debts worth $5.4 billion of a total $7.5 billion in foreign debt falling due from April 1, 2002 to December 31, 2003.

Indonesia needs the rescheduling to help cut its 2002 and 2003 budget deficit, reduce balance of payment risks and ease local interest rates driven up by stubbornly high inflation.

While this latest agreement had been widely expected by Indonesia’s financial markets, economists said the government had done well to get such favourable payment terms and they generally saw the result as a reward for recent economic and legal reforms.

Given the condition this is the maximum Indonesia can get from the Paris Club which is positive since it will help our cash flow, Juoro said.

Under the agreement, foreign development aid loans would be repaid over 20 years, including 10 years grace while other official foreign debt would be repaid over 18 years, with five years grace.

The deal did not include restructuring on debts owed to private lenders, such as a $400 million Yankee bond due in 2006 and some interbank exchange offers, although Indonesia has promised it would seek compareable treatment from private creditors.

There had been concern strict insistence by the Paris Club on burden sharing by private lenders could have led to a technical ratings downgrade of Indonesia to “selective default”.

But ratings agency Moody’s Investors Service said after the deal was announced it was unlikely to change the country’s sovereign ratings.

Talk of a likely deal had led to sharp gains in recent days in the rupiah and on the Jakarta stock market but many analysts said stocks may be hit by profit taking in the coming weeks after the market had bought on rumour.

And economists agreed that while the latest agreement was a step in the right direction Indonesia’s economy still has a long way to go to shrug off the effects of the Asian crisis.

Chief economist from state-owned Danareksa Securities Raden Pardede said in particular the cash-strapped nation would face an increased financial burden in 2004 and 2005.

With so much of the domestic debts maturing in that period, more rescheduling seems likely.—Reuters