Big debtors cleared
Big debtors cleared
The Indonesian Bank Restructuring Agency (IBRA), which will
entirely shut down its operations later this month, has been busy
pressuring large debtors to settle their debts to the government.
More than 20 of the estimated 38 large debtors who were formerly
the majority shareholders in the banks that suffered insolvency
in 1998 and 1999 have thus far signed closing agreements with the
government to resolve once and for all their debts.
Sjamsul Nursalim, former controlling owner of the now defunct
Bank Dagang Nasional Indonesia and the Gajah Tunggal business
group, signed a closing agreement last week after a government
audit concluded that the assets he had pledged in 1999 to settle
his debts had legally been cleared and were considered sufficient
to settle his Rp 28.5 trillion (US$3.35 billion) in debt.
Mohammad "Bob" Hasan, IBRA said, would also soon be entitled
to a closing agreement after he pledged additional assets to
settle his debts of Rp 5.34 trillion.
A closing agreement, which automatically releases and
discharges the debtor from all civil and criminal liability in
respect of their debts, is concluded with former bank owners who
signed shareholder settlement agreements with the government in
1998 and 1999 to settle their debts. These large debtors owed an
estimated equivalent of almost US$15 billion. But such a final
clearance document is issued only after a government audit
ascertains that the value of the assets pledged by the debtors is
sufficient and their legal status is clear.
However insulting these deals granting impunity may be to the
public's sense of justice, they are legally the right measure.
The government is legally bound to honor the sanctity of any
contracts it has signed as long as the other contractual parties
also fulfill their part of the deal.
It is now futile, though, to debate the shareholder settlement
agreements, which were hurriedly concluded by the B. J. Habibie
administration with the largest debtors, apparently out of fear
that further delays would allow the debtors to strip most of
their assets and transfer them overseas.
The provisions that automatically release and discharge the
former bank owners of all civil and criminal liability related to
violations of the banking laws once they have resolved all their
debts may now appear legally irrational, but they seem to have
been the only deal the government could then offer to be able to
legally tie up the remaining assets of the debtors.
One should remember that the nation was mired in the height of
its multidimensional crisis between 1998 and late 1999, and what
the government did then should be judged against a background of
the crisis rather than normal conditions.
It is nevertheless mind-boggling to see that very few of the
uncooperative debtors have so far been brought to justice even
though many of them have long been accused of committing banking
crimes and other forms of business fraud.
The government had threatened resolute legal action as early
as 2000, claiming that most of the 38 large debtors had been
uncooperative, had failed to fulfill the commitments stipulated
in their debt-settlement accords and that the value of the assets
they pledged to the government seemed to have been grossly
overstated. But, the law enforcement agencies have so far failed
miserably to produce solid legal evidence proving that the
debtors had signed the agreements in bad faith or had defaulted
on their commitments.
Only legal evidence of noncompliance and bad faith will enable
the government to declare the original debt-settlement accords
void and to bring non-cooperative debtors to justice. Inadequate
evidence would only embroil the government and the debtors in
protracted legal battles, which could block the sales of the
pledged assets or put in legal limbo the assets which had been
sold to new investors with devastating results for the economy.
The biggest challenge now is to enforce the debt-settlement
agreements so as to fully satisfy the public's sense of economic
justice. This will be achieved only if the debt resolution
process is transparent and credible and gains a relatively high
rate of recovery.
Out-of-court debt settlements that are perceived to
excessively favor the debtors will only plant a time bomb that
could explode into social and political discontent with damaging
repercussions for the economy.
IBRA should be very careful in assessing whether the debtors
have fully implemented what the former bank owners have agreed on
and pledged in their shareholder settlement agreements before
clearing them from further liabilities, and releasing and
discharging them the possibility of legal action in the criminal
or civil courts based on the closing agreements.
Closing agreements with debtors that are seen to be unfair or
which were hurriedly concluded mainly to meet the April 30
deadline for the final winding-up of IBRA's operations could
plunge the deals into a legal limbo after the new government
comes to power in October.
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