Govt to recover 20% of state claims

Urip Hudiono, The Jakarta Post, Jakarta

Despite criticism, the Ministry of Finance remains upbeat about meeting its target of recovering close to one fifth of debts owed to the state this year.

Speaking during a hearing on Thursday with the House of Representative's finance commission, the finance ministry's Director General for State Claims and Distress Auctions, Machfud Sidik, said that the government expects to recover up to 19.3 percent of this year's claims.

"This rate has been calculated based on the total value of claims we expect to be able to settle this year, as compared to the total value of claims we should be receiving," he said.

This rate appears fairly respectable, and is a little lower than the 28 percent recovery rate booked by the now-defunct Indonesian Bank Restructuring Agency (IBRA) after about six years of selling distressed state assets.

As of April this year, Machfud further said, the recovery rate amounted to some 47 percent.

Last year, the ministry recorded a poor recovery rate, only managing to get back 14 percent of that year's total debts. The ministry had 27,450 state claims worth Rp 5.7 trillion (some US$593 million) in 2004, and only managed to settle 7,933 claims worth Rp 806 billion.

Total outstanding state claims as of 2004 stood at Rp 21.1 trillion, Machfud said, with some Rp 11.6 trillion accumulated over the last five years alone.

According to the relevant legislation, the finance ministry is the ultimate assignee of debts owed to state institutions -- particularly state-owned banks. All such debts of more than Rp 50 billion are handed over to the ministry for further action with a view to ensuring recovery.

Analysts have criticized this arrangement as giving unscrupulous debtors the change to get their debts written off by simply waiting for the settlement period to expire.

The ministry recently aroused public controversy following media reports that it might consider writing off a portion of the Rp 11 trillion worth of bad debts owed by 34 debtors to the country's largest lender, Bank Mandiri, as of April.

Machfud, however, explained that a debt write-off was not so simple under the legislation.

"For a debtor with collateral, it must first pay up half of the debt before being considered eligible for a write-off," he said.

"Meanwhile, for debtors without collateral, they must at least hand over 15 percent of their total debts."

Machfud further said during the hearing that the ministry held about 15,000 distress auctions last year, generating Rp 1.8 trillion in proceeds.

The legislation says that the proceeds from a distress auction go to the lender rather than to the treasury, although the government does receive revenues from taxes generated by such auctions, which last year totaled Rp 107.7 billion.