Committee reveals flaws in debt extention plan

Committee reveals flaws in debt extention plan

Berni K. Moestafa, The Jakarta Post, Jakarta

A review by a government watchdog has exposed glaring
imbalances in a plan to extend the payment period for large
debtors of the Indonesian Bank Restructuring Agency (IBRA) that,
if not revised, risked the government's effort to recoup some $13
billion in lost state funds.

In what marks another hit at the controversial debt extension
plan, the independent Oversight Committee (OC) said on Thursday
that only cooperative debtors should be eligible to benefit from
the plan.

This would rule out the majority of debtors, whom IBRA says
are uncooperative but in respect of whom the plan is actually
targeted.

"For the sake of justice, the FSPC decision, if applied,
should consider whether debtors have shown good will or not," OC
chairman Mar'ie Muhammad said in a statement.

The OC said that various of its studies had shown that most
debtors had shown a "lack of good will" in meeting their
obligations.

Its recommendations are not binding. But the OC reports to the
Financial Sector Policy Committee (FSPC), which groups together
senior economics ministers in charge of IBRA's large debt deals.

The FSPC approved an IBRA initiated plan last month to grant
debtors an extension of their repayment periods, which for many
end this year.

The shareholders' settlement program applies to former bank
owners, whose banks the government bailed out of the financial
crisis in the late '90s.

It later turned out that most had misused the bailout funds,
including redirecting them to affiliates in violation of Bank
Indonesia's legal lending limit ruling.

To avoid prosecution, the former bankers agreed to a four-year
cash and asset settlement program, starting in 1998.

But three years into the program, almost all have been
avoiding repayment, which has led IBRA to bring in the debt
extension plan.

Under the plan, debtors will have up to 10 years instead of
four, and must pay interest of at least only 9 percent as against
the current rate of some 17 percent, depending on Bank Indonesia
benchmark rates.

But as the easier terms of payment have attracted public
criticism, the OC has identified more imbalances that may come at
the expense of IBRA.

The plan offers debt haircuts as incentives, which the OC says
should be given only after debtors repay their debts.

The OC also noted the absence of any measures to prevent
debtors from stripping off the value of their assets before
handing them over to IBRA.

Debtors who, according to an internal IBRA audit, owe more
than their present debt deal stipulates, should have their deals
revised upwards to reflect the actual amount, the OC added.

It said the former bankers should only be released from the
threat of prosecution after they had settled their debts, and not
before.

The plan has yet to receive the governments' full support, and
an interministerial team is currently at work reviewing it.