Tougher on debtors<\/p>\n
The much tougher stance taken by the government on large
\ndomestic bank debtors came as a soothing piece of good news after
\nlast week's alarming verdict by the United States credit rating
\nagency, Standard & Poor's, that the banking crisis in Indonesia
\nwas the world's worst since the 1970s with an estimated up-front
\nfiscal cost as high as US$87 billion.<\/p>\n
Since early this month, the Indonesian Bank Restructuring
\nAgency (IBRA) has been much more aggressive and forceful on large
\ndebtors, many of which still boast powerful political
\nconnections. One week after the agency disclosed the names of the
\n200 biggest corporate debtors through one-page advertisements in
\nseveral newspapers, it went public with more details on the
\namount of liabilities and the names of individual debtors.
\nApparently shamed by the public announcements and scared by
\nIBRA's warning \"negotiate in good faith or be liquidated\", the
\nlarge debtors, who have simply stopped paying debts since last
\nyear, dutifully met with the finance minister and IBRA executives
\non Saturday and committed themselves to immediately start serious
\ntalks about ways of resolving liabilities.<\/p>\n
The increasing transparency and forcefulness by which the huge
\ndomestic bank bad debts, estimated at over Rp 300 trillion
\n(US$38.5 billion), are being resolved under clearly-set
\ndeadlines, go a long way in assuaging people's concerns that the
\ngovernment would quietly let the debtors laugh all the way to the
\nbank.<\/p>\n
After all, the debt resolution, though crucial for kick
\nstarting the economy on to a recovery path, is not merely an
\neconomic matter. Of no less importance is what the public sees as
\nthe principle of justice. The bad loans have been cleaned from
\nstate and private banks' balance sheets in return for government
\nfund injection (taxpayers' money) either to recapitalize banks or
\nreimburse the depositors and creditors of the insolvent banks
\nwhich were closed down. Treating the big debtors leniently amid
\nwidespread misery among people is like rubbing salt into the
\nwound, especially because many of the debtors are themselves
\nformer owners of the closed banks.<\/p>\n
Proper and prompt debt resolution, either through
\nrestructuring, liquidation and other litigation proceedings, is a
\nbig test case for the government's commitment to law enforcement,
\nwhich is one of the most crucial determinants of the government's
\ncredibility and the country's viability as a good place for
\ninvestment. The fact is a good portion of the loans, especially
\nthose from state banks, turned sour not because of the currency
\ncrisis, but because the money was lent through collusive
\npractices and other unscrupulous manners in flagrant violation of
\nprudential banking regulations. Recent audits made in preparation
\nfor the government-sponsored bank recapitalization program
\nuncovered a large number of cases where loans were
\nmisappropriated and the value of loan securities was a lot lower
\nthan the credit.<\/p>\n
Loan recovery is also quite crucial for preventing a potential
\nexplosion of a huge fiscal deficit resulting from the flotation
\nthis year of over Rp 400 trillion in government bonds to
\nrecapitalize banks and finance the deposit guarantee scheme. IBRA
\ndeputy chairman Eko S. Budianto estimated that at least Rp 60
\ntrillion of the bad loans has to be recovered annually to
\nsupplement government revenues.<\/p>\n
Moreover, the hard-won steady decrease of interest rates to as
\nlow as 23.48 percent last week from as high as 70 percent last
\nOctober will be rendered ineffective to reinvigorate the economy
\nunless the debt overhang is settled, as most indebted companies
\nwill remain deprived of access to new credit lines. Without new
\nworking capital loans, companies will be unable to resume
\noperations or increase rates of production. Worse still, the
\nrecapitalized banks will remain moribund, unable to execute their
\nfinancial intermediation function properly because there will
\nhardly be any large and medium-scale businesses viable for new
\ncredit. This condition is obviously poisonous to the banks'
\nsurvival, putting the huge sum of taxpayers' money already
\ninvested in them at a great risk of being wasted.<\/p>\n
Nonetheless the letters of commitment to entering debt
\nnegotiations is merely the first step of the long, difficult
\nprocess of debt restructuring which has to be completed by the
\nend of August. Unfortunately, time is not on the government's
\nside. Though IBRA has to tread carefully and opt for liquidation
\nonly as a last resort action, given the important economic role
\nof many indebted companies, drastic measures should be taken
\nimmediately against debtors who show no good faith or whose
\nbusinesses have no future prospects.<\/p>",
"url": "https:\/\/jawawa.id\/newsitem\/tougher-on-debtors-1447893297",
"image": ""
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"sponsor": "Okusi Associates",
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