The agreement means most Indonesian companies can delay repayment of their foreign loans for at least three years.

The foreign currency debts run up by Indonesian companies had become almost impossible to repay after the collapse this year of the Indonesian currency, the rupiah, which has fallen to less than one quarter of its value a year ago.

Warnings

But some analysts say Indonesia's problems are so severe that the agreement may merely delay rather than resolve the debt crisis.

There are already warnings of increasing unemployment and food shortages later this year.

But the BBC correspondent in Jakarta says that the alternative would have been for the banks to abandon any hope of getting back their money and to kill off any remaining prospects of an early recovery in the Indonesian economy.

Thirteen creditor banks were represented at the negotiations which took place in Frankfurt, including the three co-chairs of the steering committee, which are Deutsche, the Bank of Tokyo-Mitsubishi Ltd and Chase Manhattan Corp.

New agency to be set up

News of the deal gave the battered Asian country's economy a ray of hope and breathed life into Jakarta's stock market halting an eight-day slide by the Indonesian stock exchange.

The agreement is expected to be operational by August.

An Indonesian Debt Restructuring Agency, fully backed by the government of Indonesia and administered by Bank Indonesia will be set up.

It will provide exchange rate risk protection and assurances as to the availability of foreign exchange to private debtors that agree to restructuring their debts for eight years.

Financiers have largely welcomed the initiative.

Jerome Booth, at ANZ Investment Bank, London, said: "I would expect this to actually boost the market over time."

And Sanjit Maitra, head of economics and strategy at West LB, London, said: "It is certainly encouraging news and will help to resolve one of the most pressing issue in the region."

Tommy Suharto: had interest in failed airline

But for one Indonesian company the deal came too late.

Sempati Airlines, which was partly controlled by the ex-Indonesian President Suharto's son Tommy, is closing down operations and going into bankruptcy.

The BBC business unit says Sempati was particularly vulnerable because of its Suharto link and because its main business was domestic flights.

In Indonesia there are fears that Sempati may just be the first airline to fold.