Govt declares battle against bad debtors

Berni K. Moestafa, The Jakarta Post, Jakarta

After more than three years of abuse by bad debtors, the government looks set to strike back, calling the nation to prepare for a legal battle in salvaging billions of U.S. dollars in public money.

State Minister for State Enterprises, Laksamana Sukardi said on Friday that bad debtors would be prosecuted.

"We will arrest everyone and (so) prepare to fight a legal battle," Laksamana told House of Representatives Commission IX, which oversees financial affairs, in a hearing.

Legislators summoned the powerful Financial Sector Policy Committee (FSPC) to explain its approval of a debt payment extension plan, which has sparked public criticism.

The plan revised an earlier payment scheme, extending the payment period to up to 10 years for debtors who had neglected payment without legal consequences.

Laksamana said that either with the current payment scheme or with the revised one, a legal battle looked imminent.

"The two alternatives need a national commitment to carry out arrests and enter legal proceedings: from the judges, the prosecutors, legislators and the government. Everyone must agree to support that process," he said.

For more than three years the government has been unable to force debtors to repay their debts. They are former bankers, whose banks the government bailed out in the wake of the 1997 financial crisis.

Although financially strapped, the government managed to spend some Rp 630 trillion (about US$63 billions) of public money in saving local banks from collapse, making it one of the world's costliest bailout programs.

Interest payments on the bonds that were issued to raise the money have since effectively crippled the state budget.

Principal and interest payments on government bonds in local banks make up most of the Rp 59.2 trillion allotted for domestic debt payment this year.

That amount should be seen against Rp 52.2 trillion in crucial development spending, including social welfare programs, set aside in the state budget.

Besides spending the Rp 630 trillion, bankers were also believed to have abused Rp 138.4 trillion of that amount.

The Supreme Audit Agency suspected most of the funds were rechanneled to help affiliated companies or used to speculate against the rupiah, accelerating the fall of the unit in 1998.

The bankers agreed to repay the money that they admitted they had abused, but in return demanded there would be no prosecution.

In 1998, the first batch of these bankers signed the shareholders' settlement program with the Indonesian Bank Restructuring Agency (IBRA).

But three years later, debt payments have remained minimal, and IBRA efforts to prosecute them have come to nothing so far.

Laksamana described the debt settlement contracts as lousy.

The current schemes, he said, made prosecution difficult as only after debtors' contracts ended without payment, would that constitute default.

Without default, debtors remained cooperative, while only uncooperative debtors could face prosecution, he later told reporters.

Under the revised plan, he said, the government would seek to trigger the event of default at the beginning of the contracts.

In separating cooperative debtors from uncooperative ones, the government would require them to make a down payment on their debts.

But critics said the revised plan required debtors to pay only a small amount of money up front, which most would likely be able to meet.

Despite the FSPC's approval, a number of ministers reportedly rejected the revised shareholder settlement program.

State Minister for National Development Planning Kwik Kian Gie opposed the plan, reasoning there was no guarantee that debtors who thus far had refused paying would start doing so.

A small interministerial team is reviewing the revised program, and is expected to conclude its work this month.