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.