Debt haircut facility for SMEs

JAKARTA (JP): The Financial Sector Policy Committee (FSPC) decided on Tuesday to allow local banks to provide debt reduction of up to 25 percent in the restructuring of debts owed by small and medium-sized enterprises (SMEs).

FSPC secretary Syafruddin Tumenggung said that the decision would help expedite the debt restructuring process of the SMEs.

"The FSPC has approved the proposal to provide a 25 percent haircut to (indebted) SMEs," Syafruddin told reporters following a late meeting of the committee.

The FSPC oversees the country's corporate restructuring process.

Syafruddin said that SMEs under the Indonesian Bank Restructuring Agency (IBRA) had previously enjoyed the haircut facility.

IBRA received the debts from banks liquidated by the government in 1998 and 1999.

The indebted SMEs include companies who separately owe less than Rp 5 billion (US$532 thousand).

Critics have earlier claimed that there was no need to provide the haircut facility because many of the SMEs actually belong to wealthy businessmen.

But president of the giant state-owned Bank Mandiri, E.C.W. Neloe, welcomed the FSPC decision.

Neloe said that the debt haircut facility would help expedite the debt restructuring of some 10,000 indebted SMEs owing around Rp 1.5 trillion in bad debts.

He was speaking to reporters following a meeting with the FSPC.

But Neloe said that, in addition to the debt haircut facility, the committee had also agreed to allow banks to annul the interest rate charged on the debts of SMEs.

He said that this facility would encourage the SMEs to repay their debts in cash. (rei)