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)