|Subject: Indonesia debt little affected by E.Timor
Date: Thu, 9 Sep 1999 00:36:24 EDT
11:15 a.m. Sep 08, 1999 Eastern
Indonesia debt little affected by E.Timor chaos
By David Chance
LONDON, Sept 8 (Reuters) - Indonesian debt has been relatively unscathed by the turmoil in East Timor, unlike the rupiah and stock market, and provided Indonesia receives international financial support, investors see no change.
While the rupiah has plunged to 8,500 to the dollar on Wednesday -- well outside the 6,000-7,000 level targeted by Indonesian authorities -- Indonesia's thinly traded eurobond issue due 2006 continued to trade at what one analyst described as an ``absurdly tight'' 600 basis point spread over U.S. Treasuries, compared with a best level this year of 542 bp.
More indicative of the risk investors are attaching to Indonesia are the Bank Indonesia-guaranteed exchange loans, said David Boren, emerging market debt fund manager at Montpelier Asset Management.
There was $8.25 billion of these central bank guaranteed loans outstanding at the end of 1998, according to the Bank for International Settlements, International Monetary Fund and OECD, compared with $400 million on the eurobond.
Tranche two of the exchange loans, due 2000 is trading at a 1,477 basis point spread over U.S. Treasuries, while exchange loan tranche four due 2002 is trading at 1,200 basis points over, a reflection that investors see more near-term risk in Indonesia than over the longer term, Boren said.
``Even the loan market is not very liquid,'' he noted.
Risks of further write-downs for foreign banks from exposure to Indonesia is also limited, and Boren notes that real progress has been made in restructuring Indonesian companies and banks.
``There is limited downside because provisioning levels have already increased. Provisioning levels rose in 1999 and prices of corporate debt are driven by the restructuring under way at the companies, irrespective of macro-economic developments,'' said Boren.
Pamela McGann, group investor relations manager at Standard Chartered Plc (STAN.L) said that at the end of 1998, total bank exposure to Indonesia was 475 million pounds.
``We feel it is pretty nicely under control,'' she said.
There appears to be little prospect that multilateral agencies such as the International Monetary Fund and World Bank will pull the plug on Indonesia.
Already, some $40 billion has been pumped into the economy since the 1997 financial crisis and at no stage in loan discussions was Indonesia's human rights record made a condition of loans.
Indonesia has been meeting IMF conditions on restructuring its industry and banks and despite political pressure investors do not expect the loans to be reversed.
``It would be unusual for financing from international financial institutions to hinge on diplomatic activities,'' said Boren.
(David Chance London Capital Markets Desk, +44 171 542 6784, email david.chance+reuters.com)