DPR may grill FSPC, IBRA over debt extension scheme

Berni K. Moestafa, The Jakarta Post, Jakarta

Legislators are set to grill the Financial Sector Policy Committee (FSPC), and the Indonesian Bank Restructuring Agency (IBRA) over their controversial decision to extend a debt payment scheme for IBRA's uncooperative debtors.

Vice chairman of the House of Representatives' Commission IX, which oversees financial affairs, Faisal Baasir said the decision smacked of injustice, and demanded the FSPC and IBRA explain their decision.

"There have been talks among commission IX members, urging for an immediate hearing with the FSPC and IBRA," he told The Jakarta Post.

The powerful FSPC is in charge of IBRA's high profile debt restructuring deals, and comprises top economic ministers.

"This issue will be brought up in our first meeting when we discuss the commission's agenda for this year," Faisal added.

Last month, the FSPC approved the payment extension of the shareholders settlement program to 10 years from four.

Under the program, former bank owners, whose banks IBRA took over, agreed to repay their debts coming mainly from unpaid liquidity support loans that the government disbursed to banks at the height of the 1997 financial crisis.

The 1998 shareholders settlement program is an umbrella agreement for various debt deals such as the Master of Settlement and Acquisition Agreement (MSAA), and its newer version the Deed of Indebtedness (APU).

Three years since the program came into effect, most debtors have not even started debt payment let alone settled their debts.

They argued that lingering adverse economic conditions made it impossible to repay all their debts within four years.

The former bank owners also questioned why other IBRA debtors were allowed long payment terms of some 10 years, while theirs were fixed at four.

Ongoing talks with the former bankers failed to yield results.

As 2002 marks the last year of the program, IBRA decided to extend the payment period to 10 years with the approval of the FSPC.

This drew public criticism, spearheaded by bank analysts who question the incentives given to uncooperative debtors.

The decision came late December without public notice, and on the same day FSPC announced its 2001 working report without mentioning the last controversial ruling.

IBRA chief I Putu Gede Ary Suta argued that an extension would kick start debt payments, and warned that otherwise the government may never see its money back.

"What is the guarantee that debtors will start paying once the program is extended?" asked Lin Che Wei, regional bank analyst and director of Singapore-based SG Securities.

IBRA head of asset disposal, Dasa Sutantio said the agency did consider taking legal action against the uncooperative debtors, but was then unsure whether such a move would yield results.

According to him, a commercial solution similar to that extended to other IBRA debtors is more realistic.

That, however, also implies the government doubts the effectiveness of its own legal system.

Che Wei said that since almost all were uncooperative debtors refusing to even start paying, their lack of good will should be clear by now.

"They (debtors) must do their part of the bargain, then we'll do ours, but not the other way around," he said.

"Or we end up in the same situation 10 years from now ... this is running from reality."

IBRA argued the 10 year extension was already negotiated downwards from the 12 years proposed by consultancy firm Deloitte & Touche, which had represented former banker, Sjamsul Nursalim.

But in earlier talks with IBRA, Deloitte had proposed only an eight year extension, casting doubts on IBRA's negotiation skills.

Che Wei added that the debt extension approval was unfair in the face of the government's move to hike fuel and power prices.

The interest rates on state bonds that funded the banks' bail out remains a burden on the state budget. The energy subsidy saved from the increase in fuel prices would pay for the interest rates.

However, Che Wei questioned why the burden of the higher fuel prices was placed on the public while the debtors were given a further grace period.