A who's who of debtors

A who's who of debtors

The 200 largest corporate debtors, who are partly responsible
for leading virtually every major domestic bank, including the
seven state banks, into technical bankruptcy, were finally
announced through newspaper advertisements on Tuesday. However,
the announcement, made after several delays, did not provide much
new information to those who have regularly perused newspaper
stories over the past few months about the problem of bad-debt
overhang in Indonesia's private and state banks.

The lists of the largest debtors, announced separately by the
Indonesian Bank Restructuring Agency (IBRA), state banks and
major private banks, disclosed only the names of the corporate
debtors. They did not provide further details, including the
amount of debt owed by individual companies and the majority
shareholders of the companies. The debtors were simply listed in
order of the size of their debt, known only to the creditors,
though it has long been public knowledge that the 200 largest
debtors between them have more than Rp 300 trillion (US$37.5
billion) in bad loans. In the absence of a corporate registry
agency in the country, it will require a great deal of research
to discover the owners of the companies because most of them are
not traded on the Jakarta Stock Exchange and are therefore not
subject to stringent disclosure requirements.

But many of the company names, particularly those at the top
of the lists, are already quite familiar to the public because
they have been the subject of mass media headline stories every
time the issue of bad bank loans has been raised over the past
few months. Most of the largest debtors are former president
Soeharto's children and cronies, as well as large business
groups.

Nonetheless, the mere disclosure of the names of the corporate
debtors -- though made under pressure from the International
Monetary Fund (IMF) -- is a significant step toward enhancing
transparency in the banking industry, a principle which has
stubbornly been sidestepped by most banks under the pretext of
safeguarding banking secrecy.

Most banks seem to have encountered great difficulty in
persuading the debtors to enter serious debt-restructuring
negotiations, as can be seen from the footnote in each of the
announcements inviting the debtors to immediately begin
negotiations with their respective creditors.

Minister of Finance Bambang Subianto said on the eve of the
announcement that the publication of the names of the largest
corporate debtors was aimed at expediting the recovery of loans.
Bambang did not explicitly say so, but one could easily deduce
that the announcement was meant to pressure or shame debtors into
settling their liabilities.

Many people have doubted the government's seriousness and
political will in dealing firmly with the corporate debtors
because of their political connections. In fact, it took pressure
from the IMF to force the government to take firm action against
recalcitrant debtors.

However, with or without IMF pressure, the government now has
no alternative but go all out to recover the bad debts at
domestic banks if it is truly serious about reviving the banking
industry and reinvigorating the economy. Since the government is
now the majority shareholder in almost all major domestic banks,
loan recovery, either through restructuring or liquidation, is
its responsibility.

It is obvious that without resolving the problem of bad loans,
most major banks will never recover from their technical
bankruptcy, despite the government's $44 billion recapitalization
program, and the economy will remain depressed as new lines of
credit will remain closed to most companies.

Recovering a large portion of the bad debt is also crucial to
prevent a fiscal deficit explosion in one to two years. The
government's debt -- more than $85 billion in overseas debt and
the equivalent of $50.8 billion in domestic liabilities resulting
from the issuance of treasury bonds for the recapitalization of
banks -- poses so huge a burden to the state budget that part of
the liabilities must be settled with the proceeds from the
recovery of loans, otherwise the central bank will have to print
a huge amount of money at the peril of the entire economy.