Stalling debt workout<\/p>\n
One cannot help but feel flabbergasted by the disclosure by
\nthe executive secretary of the Financial Sector Policy Committee
\n(FSPC), Syafruddin Tumenggung, that the finance minister had
\nsimply refused to implement hundreds of debt restructuring deals
\nalready approved by the committee. Syafruddin did not specify the
\namount of debts involved, but the total must have been quite
\nlarge because only deals worth over Rp 1 trillion require FSPC
\napproval.<\/p>\n
He told a seminar on Wednesday that the finance minister and
\nthe Indonesian Bank Restructuring Agency (IBRA) -- which is under
\nthe finance ministry -- had thus far rejected 140 deals endorsed
\nby the FSPC for unknown reasons.<\/p>\n
Whatever the rationale behind the finance minister's defiance,
\nhis refusal to execute so many debt workout deals is simply mind-
\nboggling, given the crucial importance of corporate debt
\nrestructuring for fueling economic recovery.<\/p>\n
What is then the point of IBRA submitting to the FSPC debt
\nworkout deals the agency has processed if it has its own
\ndiscretionary power to executive or turn down decisions of the
\ncommittee?<\/p>\n
What makes the issue unnecessarily irksome is that the finance
\nminister (Prijadi Praptosuhardjo up until June 12) is ex officio
\na member of the FSPC, which is headed by the coordinating
\nminister for the economy (Rizal Ramli up until June 12) and
\nconsists of several other economics ministers. And the FSPC is
\nthe governing board of IBRA, even though organizationally IBRA is
\na unit of the finance ministry.<\/p>\n
Moreover, all debt restructuring deals submitted to the FSPC
\nfor approval are procedurally based on the schemes worked out by
\nIBRA's loan restructuring department.<\/p>\n
Even though the FSPC was criticized last year for endorsing
\nseveral questionable debt workout deals that were considered to
\nbenefit large conglomerate debtors, the finance minister's
\nconduct in this instance was entirely unprofessional. This only
\nvalidates the public's notion of how poor indeed is the teamwork
\nof the Cabinet's economics team.<\/p>\n
True, Prijadi and Rizal were not known to enjoy an excellent
\nrapport and both often did not shy away from publicly airing
\ntheir differences of opinion. Yet Prijadi should have fought all
\nout for his stance at the FSPC assessment meetings instead of
\nexpressing his dissent after decisions had been made. Or in cases
\nof suspected collusive decisions or grossly questionable deals,
\nthe finance minister could have, as a last resort, alerted the
\nIBRA Oversight Committee that regularly reviews FSPC decisions.<\/p>\n
As the FSPC is only a policy task force and is not
\norganizationally equipped with resources for technical
\nadministration, it is the finance minister and IBRA that should
\nbear the full responsibility for executing all decisions already
\ntaken by the FSPC.<\/p>\n
Simply casting aside ministerial-committee decisions on deals
\nthat often take IBRA up to 18 months to work out is not only
\nquite irresponsible, but is also damaging to the process of
\neconomic recovery. The slow progress in corporate debt
\nrestructuring has been one of the main causes that have kept the
\neconomy bleeding since the 1997 financial crisis.<\/p>\n
Only by restructuring their debts will the companies regain
\naccess to new credit lines to resume full-capacity operations and
\nhelp strengthen economic recovery. Until the Rp 280 trillion ($25
\nbillion) in bad debts taken over by IBRA from closed and
\nnationalized banks are restructured or resolved, the nascent
\neconomic recovery will remain fragile.<\/p>\n
Though one cannot be sure as to whether the problem was one of
\nthe reasons behind Prijadi's dismissal from the Cabinet last week
\n-- after all, nobody can guess the rationale behind President
\nAbdurrahman Wahid's regular tinkering with his Cabinet -- Rizal's
\nappointment to replace Prijadi last week could help accelerate
\nthe corporate debt restructuring program. As the finance
\nminister, Rizal also directly supervises IBRA and all state
\ncompanies.<\/p>\n
Irrespective of several controversial or questionable
\ndecisions Rizal made in the past, he is known for his courage to
\nmake fast, bold decisions -- something sorely needed during the
\neconomic crisis in which the nation has been mired since late
\n1997.<\/p>\n
For those who are concerned that Rizal might go overboard with
\nhis vast authority now, it is reassuring to know that clear-cut
\nguidelines for corporate debt restructuring, formulated early
\nthis year in cooperation with the International Monetary Fund,
\nhave been enforced in IBRA. Any major debt workout deals made by
\nIBRA can be assessed by the FSPC or the Oversight Committee
\nagainst the guidelines that emphasize transparency,
\naccountability and independent reviews of debtors' future
\nviability.<\/p>",
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