Banks to select SME debtors for restructuring

The Jakarta Post, Jakarta

The government promised on Wednesday a tighter selection process for debtors, using bank assessments to ensure that a debt restructuring scheme for small- and medium-sized enterprises (SMEs) would benefit the eligible ones.

While the current selection scheme identifies SME debtors only by the amount of their debts -- up to Rp 5 billion (about US$ 522,000) -- the new ones will likely let banks check whether the debtors are in fact SMEs.

"Banks will carry out the selection process," Minister for Cooperatives Alimarwan Hanan said on the sidelines of a workshop for SMEs.

Efforts to recoup some Rp 39 trillion in bad debts owned by SMEs to the government or state-owned banks remain in limbo, with no debt restructuring scheme in place to kick start their repayment.

One reason behind this dragging is the concern that some of the debts are not necessarily SMEs'.

The government has grouped together all individual debts of no more than Rp 5 billion as SME debts, including credit card loans, consumer credit loans or loans owed by businesses linked to large companies.

This means non-SME debtors could get softer repayment terms under a restructuring scheme, under which the government intends to revitalize indebted SMEs only.

Alimarwan said the scheme would include a debt reduction offer, which, under an earlier draft, amounted to 50 percent if debtors made a one-time cash settlement up front.

Another stimulus offer has been refinancing facilities to allow SMEs to tap funds to become productive and repay their debts.

But critics demanded the government take the non-SME debtors out of the Rp 39 trillion debt pile, to ensure only SMEs would enjoy the incentive-laden debt restructuring scheme.

Alimarwan fell short of saying how banks would select SME debtors, but a measure widely used is to check their sales turnover or the number of staff.

According to him, a final debt restructuring scheme for SMEs could come out before the end of this month.

Speaking at an opening ceremony for the SME workshop, President Megawati Soekarnoputri demanded a "concrete scheme and clear program" to help out indebted SMEs.

She said some 40 million Indonesians worked in the SME sector, where most turnover was below Rp 5 million per year.

Yet those businesses accounted for 63 percent of Indonesia's yearly gross national income, she added.

"Before us lies a picture of incredible economic potential, but also that of a social reality that we cannot ignore in our development plan," the President said.

Coordinating Minister for the Economy Dorodjatun Kuntjoro- Jakti said one problem for SMEs here was that large business groups had built up their empires without involving them.