FT: Banks block Indon debt rescue (fwd)

[Robert Weissman <rob@essential.org>]

Financial Times
February 23 1999
*Banks block Indonesia debt rescue
By Sander Thoenes in Jakarta
A little known and less understood culture gap between Japanese and western
bankers stands in the way of billions of dollars worth of Indonesian debt
restructuring.
The gap has become apparent in the past few days in the case of Astra
International, which produces cars and motorcycles with Toyota, Honda and a
host of other, mostly Japanese, partners. For months it has been struggling
to
renegotiate debt payments with its creditors, but the Japanese banks which
are
its main lenders have so far refused to accept Astra's claim that it cannot
make the interest payments in full.
"Restructuring is something they're not used to," said Rini Soewandi,
Astra's
president director. "They do not know what to compare us with."
Other negotiations on large chunks of some $80bn in corporate offshore debt
have also stumbled over Japanese insistence that, while principal payments
can
be delayed, the full sum plus interest must eventually be repaid.
"It is a dogma," said Seiichoro Shimamoto, chief representative in
Indonesia
of the Export-Import Bank of Japan. "Interest should be paid." Furthermore,
says Mr Shimamoto, the debt write-offs usually involved in restructuring,
known as "haircuts" are taboo.
That dogma has exasperated western bankers, many of whom have already made
provisions for Indonesian loans and are willing to accept partial payment
before the cash flow of the borrowers deteriorates further. "The cake is
getting smaller," one European banker said. "The [Japanese] banks just
don't
realise yet they'll have to take losses. Boys, bite the bullet."
Part of the Japanese aversion to restructuring, as opposed to mere
rescheduling of payments, simply reflects the dire state of Japanese banks,
many of which cannot afford to make the necessary provisions. Japanese
banks
also have much larger exposure than most of their western counterparts.
But Japanese bankers also do not believe restructuring works in the long
run.
"A 'haircut', I don't understand why that becomes a solution," said the
Jakarta representative of a big Japanese trade house. "Once we make a
'haircut', we say - no more business with that company. If they don't pay
interest our exposure increases. Our ratings will drop. So we don't like
it,
and many Indonesian customers also don't like it."
Mr Shimamoto said the focus on interest payment also reflected the high
value
Japanese bankers put on business relationships, rather than mere number
crunching. "The relationship between a lender and a borrower is one of
equal
footing, of trust," he said. "The interest is the cost of the money that is
needed for lending. If you get no interest back you are giving very
benevolently. No more trustworthy relationship."
"Inside a business group, it is done," he added. "If a company has invested
in
the other, if it is a father and son relationship, it is different."
Even that relationship is coming under strain, however, as Japanese banks
struggle to stay afloat. Mr Shimamoto's bank, a government agency, has
quietly
bailed out Japanese joint ventures with more than $2bn in loans because
Japanese commercial banks can no longer stick to the tradition of
supporting
affiliated business.
Similarly, the premise of sticking to payment in full is crumbling because
Japanese banks can no longer promise new loans. "Now, because of the
economic
constraints, you can't just stick to the warm, emotional economic
relationship
any more," Mr Shimamoto said. "Because of the power of the rating agencies,
because of globalisation, the banks have completely changed."