Govt urged to take firm action against bad debtors

Govt urged to take firm action against bad debtors

JAKARTA (JP): Senior economist M. Sadli called on the
government on Thursday to take stern legal sanctions against
recalcitrant debtors and award the cooperative ones with possible
debt reduction.

Speaking at a seminar on Indonesia's economic recovery
prospects, Sadli said the government should not hesitate to
prosecute those who allegedly use Bank Indonesia's emergency
liquidity credits for their banks and did not show good faith to
pay the debts.

"One or two of the culprits in the banking breakdown should be
hanged to give the other bad debtors a lesson," he said.

On the other hand, Sadli said, the government should give more
leeway for indebted companies with good prospects, which were
cooperative in settling their debts with the Indonesian Bank
Restructuring Agency (IBRA), to help them restart their currently
struggling businesses.

Debt relief could be granted to indebted but prospective firms
through various schemes, including debt to equity swaps,
rescheduling of their maturity or granting lower interest rates,
he said.

He added that a debt to equity swap scheme would likely be a
better and fairer option for IBRA in resolving corporate debt
overhang.

But he noted that the government must ensure that its debt
reduction facility for indebted companies under IBRA's control is
done in a fair and transparent way.

He warned over possible outcries if the government mistakenly
gives its facility to debtors who actually contributed to the
economic crisis.

"People will be angry if they know that the haircut facility
is given to some particular debtors who are actually the culprits
in the banking breakdown. That is not fair and not educating at
all," he said.

In order to accelerate the restructuring of the lifeless
corporate sector, the government recently announced its decision
to allow IBRA to provide a debt haircut facility to indebted
companies.

The government said debt reduction would only be given under
certain conditions, including if it was commercially deemed as
the best option for IBRA as a creditor; if there was no proof of
crime or fraud committed by the debtor; and if the debtor was
cooperative in settling its debts.

According to IBRA, a haircut on overdue interest payments
ranges between 25 percent and 100 percent and would be provided
to debtors with outstanding debts of Rp 5 billion (US$666,660) or
less, if the latter repaid their outstanding debts between Jan.
20 and Feb. 21.

IBRA currently controls some Rp 250 trillion worth of
nonperforming loans (NPLs) transferred by the country's ailing
banking sector. Some Rp 26 trillion in NPLs has so far been
restructured by the agency.

A large part of the bad loans are owed by major businesses
linked to influential businessmen.

The government was previously determined not to provide a debt
haircut facility, despite strong calls from the business sector.

As a result, IBRA was strongly criticized for being too slow
in restructuring and recovering the massive bad debts under its
management.

Arnold Harberger, an economist from the University of
California in Los Angeles, agreed to the idea of debt relief for
prospective businesses to help jump-start economic activities.

"You have to immediately reactivate business activities to
help accelerate the economic recovery. Indonesia has hit the
bottom, but very slow growth has taken place this year," he said.

Harberger said the slow recovery was partly due to the fact
that the Indonesian economic system was immature and
undisciplined, and its leaders lacked a strong sense of crisis.
(cst)