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)