Slow debt resolution<\/p>\n
The Indonesian government's decision to hire 20 more foreign
\nexperts on debt restructuring next month shows how frustratingly
\nslow the process has been to resolve the US$67 billion in
\ncorporate foreign debt and more than Rp 300 trillion (S$37.5
\nbillion) in over-hanging domestic debt. Thus far only $2.5
\nbillion and Rp 1.9 trillion in bad debts have been restructured,
\nalthough a resolution of the huge debt problem is one of the keys
\nto economic recovery.<\/p>\n
The progress, achieved about nine months after the
\nestablishment of the government-sponsored Jakarta Initiative Task
\nForce to facilitate out-of-court settlement of debts, is a real
\npittance. One could imagine how much longer it would take to
\nwholly resolve the huge private sector debt, the key to reopening
\nthe international financial market and domestic credit lines to
\nIndonesian companies.<\/p>\n
Most debtors have simply stopped servicing their debts, citing
\nthe collapse of the rupiah as a force majeure to justify their
\nlaid-back attitude. Realizing that the unilaterally declared debt
\nmoratorium would jeopardize the whole economic stabilization and
\nrecovery program, the government decided in September 1998 to set
\nup the Jakarta Initiative as a scheme to facilitate debtor-
\ncreditor negotiations. Debtors agreeing on restructuring their
\ndebts under the scheme are given exchange rate protection under
\nthe government-sponsored Indonesian Debt Restructuring Agency.<\/p>\n
To prod debtors to negotiate with creditors in good faith, the
\ngovernment strengthened the bankruptcy law and set up a
\ncommercial court last July to expedite insolvency proceedings.<\/p>\n
This more credible insolvency system did prompt more debtors
\nto negotiate with creditors. The Jakarta Initiative said last
\nweek it was now facilitating negotiations involving $20.8 billion
\nand Rp 11.6 trillion in debts owed by 181 companies.<\/p>\n
More debtors have increasingly realized that unless their bad
\ndebts are resolved their fate will hang in the balance. No
\ndomestic or foreign creditor and supplier will touch them.
\nDeprived of working capital and shunned by other companies, they
\nwill sooner or later become bankrupt anyway.<\/p>\n
However, debt restructuring is a very complex process
\ninvolving a lengthy examination of a debtor's strengths and
\nweaknesses and a design of a sensible business plan and
\nreasonable balance sheet. Predicting cash flow even for one year
\nahead seems rather impossible given the messy business climate
\nand political uncertainty, let alone for eight years-- the
\nminimum maturity for debt rescheduling set under the Jakarta
\nInitiative.<\/p>\n
Here, we think, lies the importance of the expertise to be
\nbrought in by the 20 additional international experts who will be
\nassigned to the Jakarta Initiative Task Force. The fact is debt
\nrestructuring actually is synonymous to corporate restructuring,
\nwhich is completely new to Indonesian business culture but is
\nsorely needed to reinvigorate the crippled business sector and to
\nenhance good corporate governance.<\/p>\n
However, debtors should negotiate in good faith, meaning they
\nshould be fully honest and transparent about their true condition
\nto creditors. Restructuring, either by debt rescheduling or a
\ndebt-for-equity swap, still gives a fair chance for debtors to
\nrevive their business to robust growth within a few years to come
\nand for creditors to recoup a good portion of their loans. But a
\nbankruptcy suit surely leads into business liquidation at the
\nexpense of both parties.<\/p>\n
PT Astra International is a paragon of a good debtor. This
\ngroup has finalized agreements with almost all its foreign
\ncreditors, including Japanese bankers well-known as the toughest
\namong them, who praised the honesty and transparency with which
\nthe management presented business plans for debt rescheduling.
\nDebtors also should not hesitate to cede majority ownership of
\ntheir companies in case debt-for-equity swap is the best method
\nfor resolving their debts. Bakrie Brothers is a case in point.
\nThis group prefers losing controlling ownership to foreign
\ncreditors but still maintains a good reputation and trust of
\ninternational and domestic businesses.<\/p>\n
On the other hand, though, foreign creditors are required
\nto show a good understanding about the woes faced by their
\nclients. They should not indiscriminately insist on recovering
\nfully all credits and interests due but be reasonable in the
\nvaluation of their debtors' assets. Forcing debtors to surrender
\nassets at fire-sale prices could cause a nationalistic backlash.
\nBoth debtors and creditors who in the past shared the benefits of
\ntheir deals should be willing now to share losses.<\/p>",
"url": "https:\/\/jawawa.id\/newsitem\/slow-debt-resolution-1447893297",
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"sponsor": "Okusi Associates",
"sponsor_url": "https:\/\/okusiassociates.com"
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