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.