Government to pursue debt collection job

Government to pursue debt collection job

JAKARTA (JP): The government has promised in a new Memorandum
of Economic and Financial Policies (MEFP) with the International
Monetary Fund to press ahead with the collection of massive
nonperforming loans (NPLs), and the recovery of other assets to
help finance the huge cost of the bank restructuring and
recapitalization program.

The government said the Indonesian Bank Restructuring Agency
(IBRA) had established recovery schedules aimed at collecting at
least Rp 17 trillion (about US$2.6 billion) by March 2000, the
end of the current fiscal year.

"A principal focus continues to be on loan collection and
asset recovery by state banks and, crucially, IBRA whose
portfolio accounts for three-quarters of the total asset value to
be resolved," said the MEFP document, released on Friday.

The MEFP document was attached to the government's new letter
of intent (LoI) to the IMF. Approval of the LoI would pave the
way for the disbursement of the fund's $460 billion cash bailout.

The government-sponsored IBRA is currently in control of some
Rp 600 trillion worth of assets, including some Rp 230 trillion
in NPLs, and Rp 150 trillion in bank liquidity support.

The agency has a mission to recover the assets to raise
proceeds which will help finance the government's costly bank
restructuring and recapitalization program.

IBRA has been criticized for dragging its feet in collecting
the NPLs, which are mostly owed by politically well-connected
debtors.

IBRA has also been facing criticism over the slower than
expected sale of assets in the form of shares in various
companies, which were pledged by former bank owners to repay
government liquidity support received last year.

But the government said in the MEFP document it would take
sterner measures against noncooperative bank debtors who owed
NPLs. The document says their names will be publicized by the end
of August, with legal action to begin by the end of September.

The MEFP document said: "they will be subject to penalties,
including prompt filings for bankruptcy and foreclosure within
one month of publication."

The government expects IBRA to have started debt restructuring
negotiations with cooperative debtors by Sept. 30.

It also said at the end of June, 784 debtors -- accounting for
over half of all debtors with loan values above Rp 50 billion --
had signed letters of commitment pledging their cooperation.

The government has said IBRA should, by the end of December,
be involved in intensive debt restructuring negotiations with at
least 80 of the largest borrowers from the seven state banks, 12
nationalized banks, and 380 obligors of the seven recapitalized
banks and closed down banks.

The goal was to "complete at least 70 percent (book value) of
these negotiations by March 31, 2000", the document said.

An obligor is a group of indebted companies belonging to a
single owner or business group.

"Loan recovery performance will be monitored by the new
interagency committee," it said, adding that loan collection
efforts would be carried out in a transparent manner by releasing
quarterly reports beginning in September on the loan recovery
performance.

"IBRA will also publish quarterly income statements and
balance sheets from Sept. 1999," the document said.

Prosecution

The government also said that noncooperative former bank
owners owing debts to the government would be recommended to the
Attorney General for prosecution by Aug. 31.

The government hopes that all assets pledged by the former
bank owners to repay obligations to the government will be
transferred to holding companies by the end of the year.

In order to boost the proceeds, IBRA will first try to improve
the value of the various companies before selling stakes.

Minister of Finance Bambang Subianto recently said the overall
cost of bank reforms was estimated at Rp 550 trillion, or
approximately 50 percent of gross domestic product.

The government will issue bonds to finance the cost, and the
state budget and IBRA will cover the interest burden of the bonds
issue, which in the current fiscal year is estimated at Rp 34
trillion. IBRA will contribute half of that amount.

The MEFP document also disclosed other bank restructuring
programs.

The government said it would issue 80 trillion rupiah in bonds
on July 31 to begin recapitalization of Bank Mandiri.

Bank Mandiri is being recapitalized by the government in three
stages, at a total cost estimated at Rp 137.6 trillion. Release
of the remaining tranches will be contingent on the bank meeting
loan recovery and profitability targets.

Four state banks -- Bank Bapindo, Bank Dagang Negara, Bank
Ekspor Impor Indonesia and Bank Bumi Daya -- are being merged to
form Bank Mandiri.

The MEFP document said some 12,000 employees of the four
banks' 26,500 employees would be laid off, starting July 21 until
Dec. 2001.

It added that approximately one-third of the 210 branches of
the four banks would be closed down over the next two years, with
half of the closures achieved by the end of 1999, and many
branches significantly downsized.

Recapitalization of state-owned Bank Negara Indonesia (BNI),
Bank Rakyat Indonesia and Bank Tabungan Negara would begin on
Sept. 30, with two further installments in December and March.
The government said a major divestment in the listed Bank BNI
would take place in three years time.

The MEFP document said the government had upgraded its
economic forecast for the 1999/2000 fiscal year.

The government forecast that GDP growth would be between 1.5
percent to 2.5 percent, compared to an earlier estimate of flat
growth.

It set an inflation target of between four percent and five
percent for the period, compared to below 10 percent in the May
14 MEFP document.

Gross foreign exchange reserves were projected at between
$27.5 billion and $28.5 billion, while the current account
surplus was recorded at $2.5 billion, or 1.5 percent of GDP.
(rei)