Govt to punish bad bankers, debtors

Govt to punish bad bankers, debtors

JAKARTA (JP): Minister of Finance Bambang Subianto said on
Friday the government would take legal action against bad bankers
and debtors, responsible for at least Rp 150 trillion of bad
debts in the country's ailing banking industry.

He said efforts to settle the massive amount of nonperforming
loans (NPLs) would not only involve debt restructuring measures,
but also include a probe into violations of bank prudential
regulations.

"Many of the nonperforming loans are linked to bad lending
practices. That's why efforts to resolve the bad debt problem
won't be achieved only through restructuring measures," he said
after a meeting of the Economic and Financial Resilience Council
(DPKEK) chaired by President B.J. Habibie at the State Guest
House.

Bambang said legal action as well as transparency in the debt
restructuring measures were necessary to prevent moral
liabilities.

In March, the government banned 172 bankers of the 38 closed
banks from traveling out of the country, but is yet to take a
similar measure against bad debtors.

The government has turned down public demands to disclose the
names of the bankers, and has withstood pressure to announce the
central bank's list of bad bankers.

The Indonesian Bank Restructuring Agency (IBRA) has taken on
over Rp 100 trillion in bad debts from the country's seven state
banks.

The agency has also taken over more than Rp 120 trillion in
bad debts of 40 closed private banks, nine recapitalized banks
and 11 banks which were taken over.

The government failed to meet the April 30 deadline --
promised in a recent letter of intent to the International
Monetary Fund -- to reach a loan workout agreement with 20 of the
largest state bank debtors.

The government said it would take bankruptcy or liquidation
measures against debtors who failed to agree to the restructuring
plans.

It is no longer a secret that the 20 largest debtors -- which
according to IBRA owed more than half of the NPLs of state banks
-- are companies controlled by politically well-connected
businessmen, including the siblings of former president Soeharto
and their associates.

But IBRA deputy chairman Eko S. Budiyanto claimed on Thursday
the agency had already completed the loan workout alternatives
for the 20 largest debtors.

He said 76 percent of their bad debts, or about Rp 40
trillion, would be restructured, while the remaining 24 percent
had no prospects.

"It may take 150 years in order to restructure this (the 24
percent NPLs)," he said.

The letter of intent to the IMF stipulates President Habibie
will make the final decision on the restructuring of the 20
largest debtors in his capacity as chairman of the DPKEK.

The government appears to be playing down the delay of debt
restructuring measures.

Jakarta Initiative task force chairman Yusuf Anwar, said on
Thursday the delay would not cause problems for the IMF, which is
organizing a multi-billion dollar bailout for Indonesia.

"I think the IMF will be reasonable enough," he said.

Economists, however, said the delay might be perceived by the
international business community as reluctance on the part of the
government to implement key economic reforms, prompting
international donors to withhold aid disbursement for the crisis-
hit economy.

The IMF has a commitment to provide Indonesia with $12.3
billion in bailout funds, of which some $9.5 billion has been
disbursed.

IMF Asia Pacific director Hubert Neiss is scheduled to arrive
in Jakarta early next week to review the reform programs and
provide recommendations for the disbursement of another $460
million tranche.

Resolving the issue of mounting bad debts is a key factor for
the country's economic recovery.

"Restructuring of corporate debts is a must for the recovery
of the economy," Bambang said.

Under the government-designed debt restructuring plan, only
debtors with prospective business potential will be encouraged or
forced to agree to loan restructuring plans, while banks without
prospects will be liquidated or seized by the government.

Analysts, however, said liquidation measures might not result
in an optimal recovery of loans, as many of the debtors'
collateral lacked value.

"The trickiest part is how to get these debtors to surrender
their valuable assets, which are mostly overseas-registered
assets," said one government insider.

IBRA's Eko acknowledged the agency had difficulties tracking
down collateral of some of the debtors, as many of them received
loans through a project-financing mechanism launched by their
holding companies which was covered only by paper assets.
(rei/prb)