Govt fails to reach crucial deal with central bank

JAKARTA (JP): The government failed on Thursday to reach a final agreement on a plan to recapitalize the central bank and to conclude a crucial deal with Japan's Marubeni Corp. to restructure the debt of petrochemical giant PT Chandra Asri.

Director General of Financial Institutions Darmin Nasution said the government and Bank Indonesia could not yet agree on their respective shares of the disputed Rp 144.5 trillion in emergency loans extended to commercial banks between late 1997 and early 1999.

"We can't announce the final agreement tomorrow as scheduled. We'll ask (the House of Representatives) for more time," Darmin said following a meeting with Bank Indonesia officials.

The House has instructed the government and the central bank to resolve their dispute over the huge emergency support loans by Friday.

The row stemmed from an investigative audit by the Supreme Audit Agency that found loans channeled by the government through Bank Indonesia to troubled domestic banks were misused by bankers and a portion of the credits were not adequately backed by collateral as required by law.

The auditors discovered that Rp 130 trillion of the loans were not properly extended and about Rp 80 trillion were misused by recipient banks.

The loans were to repay depositors when the banking industry was hit by massive bank runs at the height of the financial crisis.

The government, therefore, has threatened to withdraw the treasury bonds it issued to reimburse the central bank, arguing that Bank Indonesia should be responsible for the misused loans.

Friday has been set as the deadline for both sides to settle their dispute and to decide how they will share the huge spending.

As Bank Indonesia will not have enough reserves to cover even a small portion of the emergency loans, it will become insolvent and require recapitalization.

The government and the legislators have demanded that the top management of Bank Indonesia also be reshuffled as a precondition for the recapitalization.

Chandra Asri

Separately, Secretary of the Financial Sector Policy Committee (FSPC) Syafruddin Tumenggung said the problems of Chandra Asri's debt workout were primarily centered on the equity participation of the government and Marubeni in the petrochemical company, on the restructuring tenor and the interest rate.

"It could not be completed today. We need another week because there are many variables that must be recalculated," Syafruddin said following a late meeting of the committee.

The FSPC, which groups several senior economic ministers, is the highest policy-making body on key bank and corporate restructuring programs.

The FSPC met earlier in the day with officials of Marubeni, Chandra Asri's main foreign creditor.

Chandra Asri owes about US$700 million to Japanese creditors and about Rp 3 trillion ($329.67 million) to domestic banks.

The debt to the local banks had been taken over by the Indonesian Bank Restructuring Agency (IBRA).

In June, the government reached a debt-to-equity swap memorandum of understanding with Marubeni, under which Marubeni would have a 20 percent stake in the company in exchange for some $100 million debt, while IBRA would end up with an 80 percent stake.

But the government later changed its mind on the grounds that the 80 percent stake would be perceived by the public as a government bailout of the conglomerate.

The government also fears that by owning 80 percent of Chandra Asri, it could be liable to any future debt of the company.

IBRA had reached a new agreement earlier this month with Prajogo under which the latter would end up owning 58.18 percent of Chandra Asri. Prajogo would form a new holding company called PT Zillion Petrochemical Industries which would take over the shares and debt obligations of Chandra Asri's local shareholders.

But FSPC insisted that the deal was not yet final until the committee approved it.

The Ministry of International Trade and Industry (MITI) of Japan, Indonesia's largest foreign creditor, has put strong pressure on the government to immediately resolve the restructuring of the Chandra Asri case.

Japanese creditors have insisted from the start that the government must take a huge equity stake in Chandra Asri, which would be equal to taking over the private sector debt, but sources said the government also demanded the creditors take a greater stake. (rei)