Govt agrees to provide debt haircut for indebted firms

Govt agrees to provide debt haircut for indebted firms

JAKARTA (JP): Coordinating Minister for the Economy, Finance
and Industry Kwik Kian Gie announced on Friday new strategies to
accelerate the restructuring of the lifeless corporate sector,
including an option for the Indonesian Bank Restructuring Agency
(IBRA) to provide a debt haircut facility for indebted companies.

Kwik said the debt reduction would only be given under certain
conditions, including if it was commercially deemed as the best
option for IBRA as a creditor; if there was no proof of crime or
fraud committed by the debtor; and if the debtor had been
cooperative in settling its debts.

"One of the primary keys to recovering the economy this year
is to accelerate corporate restructuring," he told reporters at a
media conference.

IBRA's deputy chairman Eko S. Budianto said at the same
conference that the authority was still in the process of
designing the "standard operating procedure" to ensure fairness
in giving the debt haircut facility.

He said IBRA would hold a tender to pick independent parties
to select debtors eligible for the debt reduction facility.

"It's important that there are no loopholes here," he said.

The government had previously been determined not to provide a
debt haircut facility, despite strong calls from the business
sector.

But as a result, IBRA had been strongly criticized for being
too slow in restructuring and recovering the massive bad debts
under its management.

IBRA currently controls some Rp 250 trillion worth of
nonperforming loans transferred by the country's ailing banking
sector. Only some Rp 26 trillion in nonperforming loans has so
far been restructured by the agency.

A large part of the bad loans are owed by major businesses
linked to influential businessmen.

Analysts have said that the slow progress in the restructuring
of the corporate sector was one factor discouraging investors to
reenter the country.

Eko explained that for some indebted companies, particularly
those which owed in U.S. dollars, it was impossible to make
repayments as long as the rupiah remains at around Rp 7,000 to
the dollar while their income was in rupiah.

"If we don't provide a way out, this problem will never be
resolved," he said.

He also said that the banking industry was reluctant to
provide new loans to companies which were still "hooked" to IBRA.

"The real sector needs a stimulus to allow it to operate
again," he said.

Kwik said that the new debt restructuring measures were being
formulated by the newly-formed Financial Sector Policy Committee
(FSPC), which is led by Kwik himself.

Members of the committee include the minister of finance,
minister of trade and industry, state minister of investment and
state enterprises and the chairman of the National Development
Planning Agency (Bappenas). The Bank Indonesia governor also sits
on the committee as an observer.

Kwik also announced that the government would boost the
capacity of the Jakarta Initiative Task Force by raising its
budget to recruit more quality corporate restructuring staff.

He also said that important restructuring cases which could
not be immediately settled by IBRA would be transferred by the
FSPC to the Jakarta Initiative.

Kwik didn't provide any further explanations, saying only that
this included cases in which IBRA was a minority creditor.

Eko said that IBRA was expected to transfer some 15 indebted
companies to the Jakarta Initiative before the end of this month.

Kwik said indebted companies whose restructuring cases were
being handled by the Jakarta Initiative could be transferred by
the FSPC to the Attorney General's Office if the committee found
the debtors to be uncooperative or lacking good will to negotiate
a solution.

Kwik also said that the government would introduce new steps
to improve the image of the country's judicial system so that the
new bankruptcy law could be implemented effectively.

"Uncooperative debtors will face severe sanctions, including
the risk of bankruptcy, if they don't support efforts to resolve
their bad debt problems," he said. (rei)