Govt scraps IBRA's debt extension plan

Govt scraps IBRA's debt extension plan

Berni K. Moestafa and
Febiola Desy Unidjaja
The Jakarta Post
Jakarta

The government has scrapped the Indonesian Bank Restructuring
Agency's (IBRA) controversial debt extension plan, and has
instead slapped a three month deadline on bad debtors to repay
their debts.

"We basically went back to the deal they (the debtors) agreed
to in 1998, but made additional provision for law enforcement,"
Coordinating Minister for the Economy Dorodjatun Kuntjoro-Jakti
told reporters after Thursday's Cabinet meeting.

The decision ended a nearly two-month review on the debt
extension plan, which critics said favored indebted conglomerates
at the public's expense.

In 1998, the conglomerates agreed to repay some $13 billion in
state-funded emergency loans to their banks, that they had
misused.

This was on top of some $43 billion in recapitalization bonds
that the banks received, and on which the state budget continues
to pay out $5 billion a year in interest.

But even though about $60 billion was spent on bailing out the
banks, most owners have yet to start repaying the $13 billion
that they have admitted misusing.

Their debt settlement agreements with the Indonesian Bank
Restructuring Agency (IBRA) expire this year.

Within 30 days starting on Thursday, Dorodjatun said, legal
counsel would evaluate the compliance of all debtors.

The outcome would be a list of cooperative and uncooperative
debtors. The latter, upon receiving notification from state legal
counsel, would have three months to settle their obligations.

"Legal action may include, but not be limited to, asset
sequestration, criminal charges of corruption, jail, and travel
bans," Dorodjatun said.

He was unable to explain how all this would be brought about.

Previous attempts to rein in errant bad debtors through legal
means have proved futile. IBRA lost nearly all of the cases it
brought to court.

Coordinating Minister for Security Affairs Susilo Bambang
Yudhoyono admitted that debtors had taken advantage of legal
loopholes, and said the government would have to "remove those
loopholes."

Asked how this would be achieved, he said there was as yet no
action plan. "We're building our plan on a case by case basis."

The country's infamous legal system has become one of the main
reform targets of international donors like the World Bank and
the International Monetary Fund (IMF).

But progress, if any, has been slow. With the government
lacking the political will to purge corruption among judges, the
court room has turned out to be the preferred battleground for
the conglomerates.

This has been compounded by IBRA's weak legal position under
the 1998 debt settlement deals it signed with the conglomerates.

One independent legal review of the Salim Group's Master of
Settlement and Acquisition Agreement (MSAA) described the deal as
unreasonable, unfair and void.

IBRA officials said the MSAA prevented effective prosecution,
as debtors could only be classified as uncooperative at the end
of the four year deal.

Under the MSAA, debtors are supposed to repay their debts by
handing over assets of equal value to IBRA.

But the scheme, designed with the help of foreign consultants,
prevents IBRA from securing more assets from debtors should the
pledged assets decline in value.

This has resulted in the low recovery rate of about 20 percent
that IBRA realized from the sale of Salim assets valued at Rp 52
trillion (about $5.2 billion) in 1998.

Five conglomerates agreed to settlement deals worth some Rp 88
trillion under the MSAA scheme. But IBRA said that only the Salim
Group had complied with its MSAA.

The government has now decided to stick to the original deals
without incorporating a debt restructuring scheme, dashing hopes
of improving IBRA's recovery rate.

"Justice is expensive," said State Minister for State
Enterprises Laksamana Sukardi in response to a question as to
whether the government had compromised the recovery rate to
assuage the public clamor that bad debtors would be brought to
justice.

The question of priorities is one that has been dividing the
government since IBRA first proposed the debt extension plan last
December.

IBRA chief I Putu Ary Suta was reportedly complaining about
how he was supposed to recover the money when Thursday's Cabinet
meeting decided to drop his debt extension plan.

Elsewhere, Reuters has reported that the IMF welcomed the
decision, calling it an encouraging move in the direction of
providing better legal certainty.