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)