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A purely analytical perception...




Continued from page 9


During times of extreme crisis many unusual things occur and the strangest is how words that we use daily are mandated new meanings. What ultimately happened, as the Indonesian scenario unfolded is that the banks and corporations just couldn’t find enough dollars and yen to repay their loans and were faced with economic meltdown. The rupiah, under intense pressure from converters continued to drop and the lower it spiraled, the more rupiah were required to buy dollars and yen. Faced with a seemingly unsolvable dilemma, they did what anyone else in the same situation would do, they defaulted. Well, not exactly, according to high level sources, the government determined that they would stop paying for a period of three months; apparently, a moratorium.

Webster’s defines the term moratorium as, "legally authorized period of delay in the performance of a legal obligation or the payment of a debt". Pretty clear, right? Wrong! The elements seem simple, the required elements are that there was government authority to take the action, a period of delay and of course, a debt that we are going to stop paying. The authority, well, it was the Indonesian Government that mandated the cessation of debt repayment. The definition requires a period of delay, we seem to have that as the government indicated that payments will be resumed in three months and lastly we need a debt, in Indonesia, finding debts do not require rocket science. So the situation seems rather simple, Indonesia has initiated a moratorium on external debt. Wrong bunkie! For some strange reason, both the IMF and U. S. Treasury determined that this was not a moratorium, it was something else. Either they didn’t tell us what it really was or whatever it is has not yet been defined. In their extreme wisdom, they thought the signals given by calling a "spade a spade" we to harsh. I mean, really, do these guys think that everyone just arrived on the boat?

"The International Monetary Fund and the U. S. Treasury came again to Indonesia’s defense, supporting Jakarta’s stance that a three-month "pause" in debt payments for some Indonesian companies doesn’t constitute a moratorium. Even Treasury Secretary, Robert Rubin joined the fray with his own interpretation of what occurred, "a framework for a voluntary private-sector initiative to help address the debt burden of the corporate sector." Robert, good but no cigar; we still think that Webster’s is right, unless maybe you want to make a new word for it. I think it would be fitting to rename the word moratorium, jumbletalk, because that is what seems to be going on; but that is what happens when things are tough.


One of Indonesia’s companies liked Rubin’s definition a lot and determined that this was an inspired way in which to hang on to cash. Throughout the economic crisis, PT Matahari Putra Prima, has been held out as a shinning example of how Indonesian Companies should function. It has tons of cash in reserve and until recently it was felt that the company would have no trouble paying the banks when loans are due. Furthermore, it had enough left over to make sizeable investment in a substantial hotel company and yet it too has joined the endless list of companies that have determined not to pay of their debts. We can just hear them at a recent board meeting;

Chairman: "We have this debt we owe the bank that is due on Wednesday and I am about to put it in the mail.

Board: "Well no one else is making any payments so why should we."

Chairman: "They are not making payments because of the moratorium on payments by companies that can’t afford it, we are not in that position."

Board: "We have our notes right here. He said this was, "a framework for a voluntary private-sector initiative to help address the debt burden of the corporate sector." I think that it would be reprehensible for our company to not join our brethren to address the debt burden of the corporate sector. I can not say that Mr. Rubin’s idea makes a lot of sense because it is difficult to understand how by not paying our lawful debt we are helping the country, but Rubin is a rich and powerful American and they are very knowledgeable in these matters. The board feels that it is our duty to default as well. In that way we will continue to be held out as a magnificent example of how business should be conducted."

Matahari withheld its payment, and Standard and Poors dropped the bottom out its debt rating lowering to it CC; substantially below investment grade. Many in the investment community also changed their ratings and suggested that the stock should be dumped immediately. The Board, well there position is that they are just good citizens doing what they must to help their country right itself during these turbulent economic times. Our hats are off to them for their willingness to standup to their critics. Incidentally, we believe that the company is broke and has used this as a smokescreen.


"Well. We still have tourism to look forward to, our beautiful resort area in Bali and our currency offering tourists great deals, we are going to be inundated with visitors in the coming months", said a high level manager believed to in the Indonesian Economics Ministry. He was a bit hasty. For the most part, tourists not wanting to be caught up in a civil war or worse a revolution, stayed away in droves. But the fat lady had still not finished her song and in early February of 1998, three massive fires started again in Sumatra and Kalimantan because of the draught brought on by the El Nino effect.

Luckily for the people in the region, computer links were being created between weather stations so that all of the countries in the region could watch the satellite images of a country on fire as well as keeping an eye on wind direction and air quality control. In six months when the system has been turned on, this may have some value but we as yet haven’t determined what it is. I am told that this is a very complicated matter and we will discuss its implications with experts in later pages if more information becomes available. If the people don’t skin the bureaucrats alive, it would seem that Suharto’s neighbors will and therefore we are not sanguine about the overall future of the country as it is presently constituted.

The people of Malaysia and Singapore were not as sanguine about the computer program putting out the fire and Malaysian Information Minister, Mohamed Rahmat said; "We hope that the Indonesian authorities will take immediate legal action regarding the fires caused by the opening up of forests and by the El Nino weather phenomenon. The somewhat controlled Singapore press suggested that Indonesia had better get on with putting the fires out no matter what was going on with their economic situation. A study was conducted by the Economy and Environment Program for Southeast Asia, (EEPSEA) in conjunction with the Indonesia Program of the World Wide Fund for Nature (WWF) which concluded, "The loss by fire of Indonesia’s forest resources, such as timber and rattan, and the damage to biodiversity and the health of forest ecosystems, have been simply tremendous."

The fine for being caught burning down trees in Borneo, Indonesia, for example is $300. When you put this into economic terms and figure out that its probably less than a penny for the match and $300 so we wind up with a grand total of $300.01 to clear land that by any other means would probably require millions of dollars. The type of lightning that starts fires in the United States is rarely found in Indonesia so that we can be confident that most or all of the damage is generated by human beings. In the first two months of 1998, there have already been 906 reports of bush, grass and forest fires against only 989 in the disastrous year of 1997.

The latest casualty of the "haze" was on National Day in Brunei when celebrations occur in the capital of Bandar Seri Begawan, the smoke was so thick that the crowd could hardly see the wondrous events planned by the benevolent Sultan and the whole show had to be moved indoors. Luckily for the Indonesian’s, oil-rich Brunei had an indoor stadium large enough to accommodate the whole shooting match, but you can image the diplomatic correspondence that would have ensued if they didn’t. But things soon started to roll faster downhill, El Nino has changed the weather pattern in the area so drastically that there has been little or no rainfall and Brunei soon had fires of its very own.

Until the forests of Brunei started burning down, their only export was oil. Now they can claim that they are a bi-exportive, smog and oil, what a combination. The U. S. State Department has issued travel warnings regarding the area and counselor staff has been offered extensive trips out of the region to give their lungs some relief from the constant haze. A spokesman for the American Ambassador stated that; "This will allow the embassy the flexibility of getting people out for relief from the haze while maintaining the operational efficiency of the embassy."

Had it not been for Brunei’s own problems with the climate, you can imagine what would have transpired. Now of course, they along with their Indonesian neighbor have become a tourist buster for the region.



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