Govt launches guidelines to settle domestic debt

Govt launches guidelines to settle domestic debt

JAKARTA (JP): The government has launched an initiative to
spur the recovery of the paralyzed private sector by providing
incentives and eliminating regulatory obstacles to reaching out
of court domestic corporate debt restructuring agreements.

Coordinating Minister for Economy, Finance and Industry
Ginandjar Kartasasmita said that private sector domestic debt was
hampering recovery in the crisis-hit economy.

"This initiative is meant to accelerate corporate debt
restructuring," he told a media conference which was also
attended by other senior economics ministers and key officials
from the World Bank, the International Monetary Fund (IMF) and
the Asian Development Bank.

Radius Prawiro, the chairman of the private debt settlement
team, said that private sector debt owed to domestic banks was Rp
691.7 trillion (US$57.64 billion) as of June 1998.

IMF Asia Pacific director Hubert Neiss said on Monday that the
monthly review of Indonesia's economic reform program which is
being conducted this week would focus on private sector domestic
debt settlement.

The new initiative, a four-point plan dubbed the "Jakarta
Initiative," outlines the steps which debt-ridden companies
should take when negotiating agreements with creditors on
corporate and debt restructuring in order to give them access to
working capital.

Ginandjar said that the program was also designed to
complement the new bankruptcy law and the private sector foreign
debt settlement mechanism provided by the Indonesian Debt
Restructuring Agency (INDRA) and would help to facilitate
rehabilitation of the banking sector.

The government yesterday outlined new rules and revised
certain regulations that would help companies to clean up their
balance sheets and "promote the availability of interim financing
to companies that are being restructured."

The revisions include the ruling on the reevaluation of fixed
assets, the tax ruling on reduction of foreign debt, the use of
foreign currency in financial reports, relaxation of merger
criteria, and allowing for share repurchase.

"These principles will apply to both domestic and foreign
creditors in a non-discriminatory manner," said Ginandjar.

Radius said: "It is our hope that companies and their
creditors will act immediately to restructure troubled
companies."

He explained that the restructuring would help kickstart
financing for the real sector of the economy which in turn would
provide more employment, prevent layoffs, and support the
government with taxes.

The government initiative to kick start negotiations between
debtors and creditors follows the introduction one month ago of
the INDRA private sector foreign debt settlement mechanism. Not
one of the country's 2,000 companies indebted to foreign lenders
has signed up to participate in the agency's program.

The corporate sector's total foreign debt amounts to more than
US$64 billion, of which $34 billion falls due this year.

To join the INDRA mechanism, debtors have to get approval from
their creditors to restructure debts over an eight year period,
including a three year grace period in which only interest is
repaid.

In return, the agency will provide companies with foreign
exchange need at a fixed exchange rate.

Companies which fail to repay their debts will be brought
before the commercial court established recently under the new
bankruptcy law.

Ginandjar said that out-of-court settlements would be
beneficial both to debtors and creditors because any ruling on
the part of the court would leave both with only the "remnants"
of the company to fight over.

Radius said that resolving the problem of domestic debt was a
very important step toward nurturing a recovery in the economy.

"The program will help debtors to negotiate a resumption of
financing with their banks," Minister of Finance Bambang Subianto
said.

He said earlier this month that non-performing loans in the
country's domestic commercial banks may amount to 50 percent of
their total outstanding loans of Rp 600 trillion, or roughly 40
percent of gross domestic product (GDP).

Economists have said the massive size of non-performing loans
was a major stumbling block in government efforts to restructure
the banking sector. (rei)