Economists say no to force majeure proposal

JAKARTA (JP): Economists have dismissed the private sector's call for the government to declare the economic crisis a force majeure, saying it would be a vain attempt at getting away from repaying their debts.

Mari Pangestu, the executive director of the Centre for Strategic and International Studies (CSIS), said here yesterday the business sector was reacting to severe pressure from highly inflated debts and that current solutions had not benefited them.

"They're desperate. They can't find a solution to their debt problems," she told The Jakarta Post.

Mari said it would be very hard for them to justify the declaration of a force majeure. In doing so, they would have to prove that they have tried everything to save their businesses and that what had happened to them was beyond their control.

A group of business executives demanded both President B.J. Habibie and Supreme Justice Sarwata on Thursday to declare the economic crisis a "national calamity".

They cited the gloomy prediction that the country's economic growth would shrink to minus 20 percent this year from 7 percent in 1997, the fact that the whole region had been affected by the crisis, the ailing banking sector and the closing down of many companies as some of the factors contributing to the calamity.

The disaster, they argued, had hit all businesses, even those which had managed their operations prudently prior to the crisis.

Benny Sindunata, an executive of the Indonesian Business Data Center, said yesterday the government was unlikely to declare a force majeure because it would only further hurt the economy.

"A force majeure (declaration) would benefit the business sector, but would crush the banking sector," Benny told the Post.

Benny said declaring a force majeure would not yield positive results to the companies seeking to be exempted from repaying their debts.

"There would no longer be fresh money circulating," he said, adding that such a scenario would put an end to normal business transactions because of fears that credits would never be repaid.

A force majeure usually denotes a natural disaster, severe fires and major accidents.

The monetary crisis, he said on the other hand, was very complex.

"Their argument that the crisis is a force majeure is not accurate because the monetary crisis was created by many factors, including political and international ones."

Mari said debtors and creditors should find other options to solve their debt problems because the declaration of a force majeure would only further taint the country's already battered image in the international community.

She said such a declaration would undermine the Indonesian Debt Restructuring Agency's (INDRA) and soon-to-be-established bankruptcy court's ability to function.

INDRA was set up by the government to help the private sector settle its foreign debts over an eight-year period, including a grace period of three years. Participants of the program are allowed to make debt payments to the agency at lower exchange rates.

Mari said most companies still regarded the current exchange rate as unaffordable, although the agency promised to fix the exchange rate at lower than market rates.

The rupiah has lost over 80 percent of its value against the U.S. dollar since last July.

The private sector has also complained that the new bankruptcy law is only beneficial to creditors, Mari added. (das)