Govt mulls 60 percent cut for IBRA debtors

The Jakarta Post, Jakarta

Nearly two months in the making, the alternative to the controversial debt extension plan is set to be presented before a Cabinet meeting today, in a scheme that may include offering debtors a flat 60 percent debt reduction.

Chances have grown slim for the government to go ahead with the much-criticized debt extension plan, which reportedly gained little support from ministers.

Replacing the infamous plan, sources said, was a scheme Vice President Hamzah Haz and his team had hatched in late January.

"From what I understood, Hamzah came up with two options," said one source who last week attended a meeting with the Vice President to discuss the scheme.

One option he said was to offer debtors a 60 percent debt reduction if they could afford a one-time cash settlement.

If workable, this scheme would bring in a recovery rate of 40 percent on the $10 billion or so that debtors still owe the government under the shareholders settlement program.

For many, the program will expire this year. But controversy arose from a plan to extend the program to up to 10 years from four currently.

The program applies to former owners of banks which were bailed out by the government during the peak of the late 90s financial crisis. Most bankers were found to have misused the funds.

Efforts to recoup them under the shareholder settlement program have gone sour as nearly all debtors defaulted on payments.

As the deadline nears, a settlement seems unlikely without revising its existing payment scheme.

The initial plan to simply extend the payment period has faced a bevy of critics and wedged a rift within the Cabinet.

Critics said there was no guarantee that debtors would start paying once their payment period was extended.

What was most unjust was that while escaping payment, the bankers were released of any criminal charges against them for the abuse of the funds.

In response to public pressure, the government relented and formed a team led by the three coordinating ministers for the economy, security affairs and social affairs to seek options other than the debt extension plan.

But the joint team reportedly did not meet until early this month, pending the return of Coordinating Minister Yusuf Kalla from his haj pilgrimage.

In the meantime, President Megawati Soekarnoputri has also assigned Hamzah to oversee the issue.

Hamzah said he and his economic team were working with the joint team, but it was unclear which side would have the final say on the draft decision to be presented today.

Kompas reported Wednesday that the team had agreed to scrap the debt extension plan, but the report did not say what new payment would replace it.

A source at the Vice President's office said the second option by Hamzah was to simply seize the assets owned by the debtors.

These were assets already under the Indonesian Bank Restructuring Agency (IBRA), which is in charge of enforcing the failing settlement program.

Under the program, the debtors could settle their debts by handing over IBRA assets at equal value.

But as it turned out, their assets have declined in value by as much as 80 percent. Seizing them now would yield a return rate of only 20 percent if sold.

The inability to raise the recovery rate has also drawn the attention of the International Monetary Fund (IMF), which called for a better approach on the debtors by this month.

Thursday's Cabinet meeting will also mark Hamzah's return as an economic policy-maker, and will include what he called an economic stimulus package.

Economists, who were invited to his office last week, called the plan a set of economic policy guidelines that would fine tune the direction of the country's reform.