Govt fails to reach crucial deal with central bank

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)