New move on debt<\/p>\n
The Indonesian government has finally moved to help resolve
\nproblems surrounding the repayment of Rp 692 trillion (US$62.8
\nbillion) in corporate debt owed to domestic banks. An impasse on
\nthe issue of repayment has resulted in a virtual freeze on lines
\nof credit to businesses in the country. But the immediate
\nquestion regarding the Jakarta Initiative on corporate debt,
\nwhich was announced on Wednesday, concerns its ability to force
\ndebtors and creditors into serious negotiations. After all, this
\nnew move, like the agreement on restructuring Indonesian private
\nforeign debt reached in Frankfurt in June, is not legally binding
\nnor compulsory in nature.<\/p>\n
Nevertheless, there are aspects of the new initiative which
\nmay encourage debtors and creditors to begin serious talks. While
\nthe Frankfurt agreement deals only with the problem of US$80
\nbillion in private foreign debt and focuses almost entirely on
\ndebt restructuring, the new initiative addresses domestic debt
\nand, more importantly, includes broader measures to restructure
\nforeign and domestic debt and the businesses of corporate
\ndebtors.<\/p>\n
Many expected that the new bankruptcy law and the special
\ncommercial court which opened last month to adjudicate on
\nbankruptcy proceedings would encourage debtors to negotiate with
\nforeign creditors under the Frankfurt framework and join the
\nIndonesian Debt Restructuring Agency (INDRA). However, no debtors
\nand creditors have so far signed up to the INDRA program, under
\nwhich debts can be rescheduled over an eight year period and
\ndebtors are guaranteed access to foreign currency at a pre-
\ndetermined rate. It appears that the persistently weak level of
\nthe rupiah against foreign currencies and the requirement that
\ndebtors signing up to the program must immediately resume loan
\npayments have acted as strong disincentives to companies which
\notherwise might have made use of the agency's facilities.<\/p>\n
On the other hand, a recourse to bankruptcy proceedings
\nthrough the commercial court, though already taken in a number of
\ncases, is seen as a last resort because it usually leads to a
\nPyrrhic victory for creditors.<\/p>\n
The Jakarta Initiative therefore places an emphasis on
\namicable, out-of-court, mutually beneficial solutions to the
\ndomestic debt problem. The rationale for this is that creditors
\nhave a better chance of recovering loans from corporate debtors
\nwhich remain on-going concerns rather than from liquidated
\nenterprises. The asset value of operating companies is always
\nmuch higher than that of liquidated ones. Moreover, bankruptcy
\nlitigations usually result in the loss of valuable investments
\nalready made in long-established relations between a bank and its
\nclients.<\/p>\n
Obviously, amicable solutions are possible only when both
\ndebtors and creditors negotiate in good faith. This means
\nindebted companies must be sincere regarding their commitment to
\nsettling outstanding obligations and that creditors must fully
\nunderstand the magnitude of difficulties faced by borrowers since
\nthe rupiah fell 80 percent in value against the American dollar.
\nOnly with sincerely and understanding will both sides reach a
\nworkable agreement to restructure both debts and the debtors'
\nbusinesses.<\/p>\n
The new initiative offers a package of supporting measures to
\ndebtors and creditors willing to negotiate in good faith. The
\nsupporting measures will be implemented by a special task force
\nassisted by a corporate restructuring advisory committee. The
\nmeasures are designed to facilitate restructuring through the
\nremoval of regulatory and administrative hurdles.<\/p>\n
The measures oblige debtors to fully disclose their accounts
\nto creditors so that negotiations can proceed in good faith.
\nTechnical assistance will be made available to debtors who wish
\nto prepare business restructuring plans and the rules governing
\nthe merger of indebted companies have been relaxed.<\/p>\n
New rules allowing companies to issue shares in different
\ncategories have been drafted, apparently with the objective of
\nfacilitating the conversion of debts into equity shares, and tax
\nbreaks have been made available to creditors that write off
\ndebts.<\/p>\n
The objective of the new initiative is obviously to reopen
\nlines of credits to the business sector, without which the
\neconomy will never recover. A revitalized business sector will
\noffer increased employment, minimize bad debts, strengthen the
\nbanking industry and generate more tax revenues for the state.<\/p>\n
The Jakarta Initiative and the package of supporting measures
\nwill hopefully provide a more conducive business, legal and
\nregulatory environment for debtors and creditors to seek amicable
\nsettlements to the problem of outstanding debts. Simultaneous
\ndebt and corporate restructuring offers creditors and debtors
\nwith a much better chance of arriving at a mutually beneficial
\nsolution. At the end of the day, though, there still remains the
\noption of either debtors or creditors resorting to bankruptcy
\nproceedings through the commercial court.<\/p>",
"url": "https:\/\/jawawa.id\/newsitem\/new-move-on-debt-1447893297",
"image": ""
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"sponsor": "Okusi Associates",
"sponsor_url": "https:\/\/okusiassociates.com"
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