Can bankruptcy law solve debt problem?

The new bankruptcy law, introduced in August to replace an antiquated law from the Dutch colonial period, was designed to help resolve the private sector's enormous debt problems. Will it be an effective means to reach this target? Or is there any other way to overcome the debt problem? This is the topic addressed by Charles Himawan, a law professor at the University of Indonesia.

JAKARTA (JP): Bankruptcy law or bankruptcy of law? This question can only be answered by the judiciary. And it will not be easy considering the daily increase of its workload.

Before May 21, people with means could push certain buttons within the state system to seek "justice", but now people are forced to turn to the judiciary, which our founding fathers had actually designed to be the institution to dispense justice.

In the field of loan arrangements, creditors sometimes must seek ways to force debtors to pay back their loans. If it becomes necessary, debtors could be declared bankrupt, prompting the confiscation of their assets to be sold to cover as much of the debt as possible. This is the underlying reason for the need of a bankruptcy law.

The country's previous bankruptcy law, enacted in 1905, was considered inadequate to address the new situation brought on by the crisis. It was no real secret that prior to July 1997 the number of bad debts in Indonesia was huge. Most creditors, particularly from America represented by the International Monetary Fund, overlooked the fact that these bad debts -- which would be responsible for the country's banking structure getting burned -- were not because of the lack of a bankruptcy law, but may have been because of a bankruptcy of law.

This is partially reflected by the great number of judicial decisions on loans that remain unenforceable. Such decisions have been only "paper tigers".

Similar concerns weigh over the new 1998 bankruptcy law, originally believed to be the country's savior from the ongoing economic turmoil and not solely for the creditors' benefit. Even though the law is only two months old, there are already several bankruptcy cases covering debts from a mere Rp 94 million (US$10,000) to Rp 600 billion.

Many observers and participants seem to be disappointed in the way these cases have been handled. Overcoming the inadequacies in the enforcement of the bankruptcy law is, in fact, not too difficult. One can simply point out the written provision that is violated.

On the other hand, overcoming the bankruptcy of law is not an easy task. It is not sufficient for the judicial court to simply look into the related written provision. The judiciary, particularly the Supreme Court, which is the institution of last resort for justice seekers, also needs to look into the business environment surrounding bankruptcy cases.

It should undertake a cost-benefit analysis of its decisions, taking into account, for example, whether or not its decision would hamper the country's economic process.

Ovid, a poet who lived during the early days of the ancient Roman empire, correctly discerned that "it is the duty of the judge to inquire not only into the matter but into the circumstances of the matter".

If this wisdom is applied, perhaps a bankruptcy of law could be turned into a supremacy of law. It appears that the government does have the political will to create such a legal environment.

The people must, however, admit that the road leading to such a legal environment is still long and far considering the human resources and financial limitations within the judiciary.

In light of these shortcomings, some may believe that it would be wise to issue a law to address the bankruptcy of law to complement the new bankruptcy law. This would only provide justifications for not implementing the law.

To prevent Indonesia from falling into a state of a bankruptcy of law, we need to uphold our founding fathers' idealism to make the country a constitutional state. We have reached a point where the urgency for this at the S.O.S. (Save Our Soul) level.

The fact that our founding fathers chose the form of a constitutional state is because the history of modern nations has shown us that a state governed by law ensures a relative peace in the struggle for civil, political, social, economic and cultural rights -- hence ensuring the long-lasting existence of the nation.