Experts question govt debt restructuring plans

JAKARTA (JP): Experts criticized the government on Wednesday for a lack of transparency in the multibillion dollar debt restructuring plans designed for four large debtor conglomerates.

Centre for Strategic and International Studies (CSIS) economist Hadi Soesastro said that the government should provide a clear and complete explanation about the new restructuring plan, including the criteria that make the companies eligible for such a salvation.

"And if other companies can meet the criteria they must also be allowed to have the same treatment to avoid the perception that the measure is only for certain groups," Hadi said on the sidelines of a seminar.

"It's politically such a big issue... I think this (restructuring plan) is a government bailout," he said.

The Financial Sector Policy Committee (FSPC), which includes several senior economic ministers, announced on Tuesday that it had approved the debt restructuring plans made by the Indonesian Bank Restructuring Agency (IBRA) for the Texmaco group, Tirtamas group, paper company PT Kiani Kertas, which is controlled by controversial timber tycoon Mohamad Bob Hasan, and Banten Java Persada chemical firm owned by former minister of trade and industry Jusuf Kalla.

Under the restructuring plan for Texmaco the government would end up owning 70 percent of a new holding company, which will control the 16 indebted companies under the Texmaco group, while Texmaco founder Marimutu Sinivasan would retain a 30 percent ownership.

Under the plan, all of the Rp 16.5 trillion (US$1.8 billion) of Texmaco companies' debt owed to IBRA would be transferred to the new holding company.

Texmaco initially owed the debt mostly to state banks but after the debts went sour they were taken over by IBRA, a unit under the finance ministry.

According to the plan, the holding company will issue convertible bonds to IBRA, which sources said would mature in eight years. The agency can sell the bonds in the secondary market or can exchange them for Texmaco's assets upon maturity.

The government has yet to provide details about the structure of the bonds.

Noted economist from the University of Indonesia Sri Mulyani said that the debt restructuring plans were equal to a government bailout and feared that it would create a new burden for the future state budget.

"The government now holds the risk," she said on the sidelines of the economic seminar.

Sri said that there was no guarantee that the companies salvaged would perform sufficiently in eight years to be able to repay the debt.

"And although some of the companies are running well, some are in a very bad condition," she said.

The country's state budget is already heavily burdened by the cost of the government bank restructuring program estimated to reach more than Rp 650 trillion. The government has issued more than Rp 642 trillion in treasury bonds to finance the bank restructuring cost and the interest of the bonds will be covered by the state budget.

The government must reduce the outstanding bonds to reduce the burden of the budget and ensure fiscal sustainability.

IMF response

Meanwhile, the International Monetary Fund declined to comment specifically on the Texmaco debt restructuring plan.

"What I can say is that the quality of the (debt) restructuring is very important for future fiscal sustainability," IMF Jakarta representative John Dodsworth said.

"The impact (of poor quality restructuring) will be felt on the future budget," he added.

IMF Asia Pacific deputy director Anoop Singh also declined to comment. "I can't comment now. We'll make a review at the end of this month."

The IMF is providing the country with a multibillion dollar bailout package to help finance the country's economic reform programs. The IMF will have to review the program first before disbursing any bailout loans.

Separately, Coordinating Minister for Economy Rizal Ramli, who is also chairman of the FSPC, dismissed suggestions that the restructuring plans for Texmaco and the other three large debtor companies was a government bailout on private sector debts.

"It is a normal restructuring deal and we want to minimize losses as much as possible," he told reporters.

Rizal said that the government wanted to move as quickly as possible to restructure the debts of companies under IBRA to prevent further losses and the maximize asset recovery.

He added that by restructuring the companies, they would continue to stay afloat, generating steady cash flows and maintaining their large employment.(rei)