'Deal to release IBRA debtors invalid'

'Deal to release IBRA debtors invalid'

The Jakarta Post, Jakarta

A four-year old deal to drop criminal charges against debtors
if they repay trillions of rupiah in state loans they abused
contradicts the law and should be declared void, experts say, but
predicted the government would not likely retract the deal.

They said the government now appeared reluctant to drop the
criminal charges, as it knew the 1998 deal was legally invalid
from the beginning.

"The concept was wrong from the onset. The law separates civil
law matters from criminal law matters, the debt settlement deal
however mixes the two," said lawyer Luhut Pangaribuan over the
weekend.

Known as the shareholders settlement program, the agreement
was made in an attempt to recoup some Rp 138 trillion (about
US$15.3 billion) in Bank Indonesia liquidity loans from former
bankers who misused the funds following the 1997 economic crisis.

Under a release and discharge clause, the government would
drop criminal charges, including one on violating banking
regulations, if the ex-bankers agreed to repay the abused loans.

But even as the deadline for most of the debtors expires this
year, payment has been minimal. There is also suspicion of them
regaining control over assets they had surrendered as part of the
debt repayment to the Indonesian Bank Restructuring Agency
(IBRA).

Controversy over the settlement program came back to life on
plans to drop criminal charges on the first batch of debtors.

Last week, the People's Consultative Assembly Speaker, Amien
Rais urged the government to cancel the plan and instead sue the
former bankers.

The government is now caught between whether to go ahead with
the widely unpopular move or to undermine its credibility and bow
to public pressure to cancel the agreement.

Finger pointing among officials over who should sign the
release and discharge clause, cemented suspicion that the debt
settlement program should not have been signed in the first
place.

"They (the government) don't want to sign now, as they know
the deal was born from a compromise with debtors," said banking
analyst Mirza Adityaswara.

The settlement program involves some of the country's largest
and most influential business tycoons, many of whom still have
links to the political establishment.

IBRA's stance to go tough on recalcitrant debtors softened
when it dismissed earlier this year suggestions by a team of
lawyers to pursue legal actions against them.

But annulling the release and discharge clause altogether may
not be the right choice, according to Luhut who is a member of
the government-appointed team.

"It would be a setback if the government cancels the deal, it
would make the government look inconsistent," he said.

Mirza agreed, saying that ex-bankers who did repay their debts
should be let free.

This may include former Bank Subentra owner Sudwikatmono and
former Bank Risyad Salim International owner Ibrahim Risyad, for
whom, along with two others, IBRA recommended last week the
release and discharge clause.

But while IBRA claim some debtors have kept their part of the
deal, legal experts have long noted the settlement program was
unfair to the government.

"The recovery rate on the sale of their (ex-bankers') assets
is questionable," said economist Dradjad Wibowo. "Proceeds from
the sale of Salim's assets are short Rp 13.1 trillion, and the
shortfall of Sudwikatmono's and Ibrahim Risyad's asset sales may
reach between Rp 1 trillion to Rp 1.9 trillion."

He said the government should verify the repayments once again
before letting the ex-bankers go.

The International Monetary Fund (IMF) has urged the government
to maximize the recovery rate, warning the public would bear the
brunt of any shortfalls.

Every year, some Rp 50 trillion in tax payers money is spent
on paying interest rates on government bonds that were issued to
cover part of the loans bankers had abused.