Debt extension plan may be scrapped

Debt extension plan may be scrapped

Berni K. Moestafa, The Jakarta Post, Jakarta

Pounded by heavy public criticism, the government may decide
to scrap a controversial debt extension plan worth billions of
dollars, as a team reviewing the plan considers whether to stick
with the original payment scheme.

The team faced two options, said the International Monetary
Fund (IMF) senior representative for Indonesia, David C. Nellor.

"One strategy, suggested by some people, would be to try and
strengthen compliance with the existing arrangements," he told
reporters after a seminar on Indonesia's debt management held by
the Centre for Strategic and International Studies (CSIS) on
Thursday.

Among the arrangements he referred to were the infamous Master
of Settlement and Acquisition Agreement (MSAA)s, which were
signed by former bankers with the Indonesian Bank Restructuring
Agency (IBRA) in 1998.

The former bankers surrendered their banks to IBRA as part of
the repayment of liquidity loans channeled into the banks, and
which they admitted they had abused.

Under the MSAAs they had to repay their debts by surrendering
their assets to IBRA for sale. In return, the government agreed
not to pursue legal charges against them.

Three years later, most had yet to fully comply with their
MSAAs, and others, required to make cash payments, have
defaulted.

Efforts to prosecute the debtors have proved futile, which
legal experts blame on IBRA's poor litigation team, and MSAA
terms favoring the debtors.

As the deadline for MSAA debtors nears, senior economic
ministers agreed to extend the payment period to up to 10 years.

The debt repayment extension plan also effectively lowers the
interest rates debtors must pay.

"Another strategy would be to, in some selected cases, enable
the debtors to meet their obligations through some revisions to
the agreements," Nellor said, referring to the controversial debt
payment extension plan.

But pressure has been growing for the government to drop the
plan.

Public criticism has been unremitting since the plan was
leaked to the press, with analysts and legislators criticizing
the government for siding with rich debtors at the expense of the
public.

Last Thursday, the State Intelligence Agency warned of a
public backlash if the government went ahead with the plan.

The government itself appears unsure, as several ministers are
reportedly against the plan.

A small interministerial team is at work to settle the issue,
and Nellor said the IMF was waiting for it to decide which of the
two options it would take.

Nellor said the key issue here was strengthening compliance
and offering legal certainty.

"So the government in looking at these alternative strategies,
will need to ensure that whichever one they chose, that there is
legal certainty that they will enhance the returns to IBRA," he
said.