Indonesia's Hasty Survival Strategy

Only a few weeks ago, Indonesia's financial system was more dead than alive. Banks were paralyzed, with 40% of their loans listed as nonperforming. Bankers, fearing corporate deadbeats, were terrified to lend more money. Meanwhile, billions of dollars in corporate bonds issued during the bull market peak in the mid-1990s were coming due, but the companies that floated them appeared unable or unwilling to pay. No one in Jakarta seemed to take the International Monetary Fund's calls for reform seriously anymore.

But in late September, Indonesian banks and debt issuers surprised the financial world with a flurry of debt-restructuring announcements. These hastily concocted plans appear to be separate but they amount to a common survival strategy: achieve just enough debt restructuring to keep the financial system ticking for two more years.