Government issues new debt restructuring policy<\/p>\n
JAKARTA (JP): The Financial Sector Policy Committee (FSPC) has
\nissued a new ruling that will provide the legal basis for
\ncreditors regarding concessions that can be granted to debtors in
\na bid to accelerate debt restructuring process.<\/p>\n
The new ruling stipulates that creditors are allowed to slash
\ninterest rates to as low as 18 percent for debts recorded in
\nrupiah and 10 percent for debts in U.S. dollars.<\/p>\n
The FSPC said in a press statement issued late last week that
\nthe interest rate could be reduced even lower than the above
\nlevels only if the majority of the creditors agreed, and the
\nexecutive of the creditors' steering committee gave its approval.<\/p>\n
The FSPC, which includes several senior economic ministers,
\nhas the final say on the country's major debt restructuring
\nprogram.<\/p>\n
The committee's poorly worded press statement did not provide
\na clear explanation of the new debt restructuring policy.<\/p>\n
Many debtors have stalled paying interest on their debts
\npartly because of the high interest rate level. This has become
\none of the stumbling blocks in efforts to reach a debt
\nrestructuring deal.<\/p>\n
But creditors, particularly the Indonesian Bank Restructuring
\nAgency (IBRA) and state-owned banks, have been reluctant to
\nreduce interest rate levels fearing that they might be accused of
\ngiving special treatment to the debtors, particularly
\nconglomerates who had thrived through bad business practices
\nduring the era of former authoritarian president Soeharto.<\/p>\n
The FSPC and IBRA have been under fire over recent debt
\nrestructuring deals they made with certain conglomerates, which
\nappeared tantamount to a government bailout.<\/p>\n
IBRA manages around Rp 260 trillion (US$27 billion) worth of
\nbad debts transferred from either liquidated or recapitalized
\nbanks. Domestic banks are also being burdened by non-performing
\nloans.<\/p>\n
Restructuring or recovering the loans is crucial to the
\nrecovery of the overall economy, particularly to reopen credit
\nlines for the real sector. But the progress so far has been very
\nslow.<\/p>\n
The new ruling also stipulates that the cash settlement of
\ndebts worth equal to or less than Rp 50 billion can be given an
\n\"interest rate discount of up to 100 percent,\" while for debts
\nworth more than Rp 50 billion a maximum interest discount of 75
\npercent can be provided.<\/p>\n
The FSPC said that no interest rate discount would be given
\nunless the debtors were willing to settle the debts fully in
\ncash, without installments.<\/p>\n
The committee added, however, that debtors can install the
\ninterest payment during the first half of the new maturity period
\nof any rescheduled debt.<\/p>\n
FSPC said that IBRA could use the exchange rate level assumed
\nin the state budget if the debtors were willing to pay debt fully
\nin cash or via final asset settlement.<\/p>\n
But the prevailing exchange rate level must be used in the
\ncase of debts being restructured.<\/p>\n
However, FSPC said that if the exchange rate loss suffered by
\nthe debtors was an advantage to IBRA, the agency could consider
\nhalving the prevailing exchange rate level or even the rate level
\nwhen the debt transaction was first made.<\/p>\n
Many debtors have been unable to repay dollar-based debts
\nbecause the rupiah has tumbled from around Rp 2,400 per dollar,
\nbefore the crisis started in the middle of 1997, to the current
\nlevel of around Rp 9,500 per dollar. The government assumes an
\nexchange rate of Rp 7,800 to the dollar in its 2001 state budget.<\/p>\n
The new ruling also opens the possibility of providing a
\ndiscount on the principal of debt less than Rp 5 billion owed by
\nindividual debtors. But this only applies if the individual
\ndebtors are either permanently ill or have passed away.<\/p>\n
Under the new ruling, restructured debts can be refinanced by
\na bank or investors without having to go through a bidding
\nprocess as long as the recovery rate of the debt is more than 70
\npercent of the initial amount of the debt principal. The FSPC
\nsaid that this was decided to minimize the cost of bidding
\nprocesses and save time.<\/p>\n
IBRA is also allowed to write off debt in cases which have
\nbeen executed through the court, even if the recovery rate of the
\ndebt is lower than the principal, as long as the agency justifies
\nthat optimum recovery has been achieved. (rei)<\/p>",
"url": "https:\/\/jawawa.id\/newsitem\/government-issues-new-debt-restructuring-policy-1447893297",
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