IFC confident of victory in Indonesian debt case

IFC confident of victory in Indonesian debt case

JAKARTA (Reuters): The World Bank's private sector lending arm
is confident of final victory in a drawn out bankruptcy case
highlighting the trouble creditors have getting Indonesian
debtors to pay up.

"We have faith in the courts that justice will ultimately
prevail," the International Finance Corporation's chief of
special operations, Charles van der Mandele, told Reuters in an
interview on Monday.

Van der Mandele expects that the IFC may have to go all the
way to the Supreme Court to do so.

But he said that even if the IFC won the Panca case, the
arduous road to victory and the high failure rate of the
bankruptcy laws in tackling recalcitrant debtors, boded ill.

"The impact will be that a lot of creditors are going to throw
up their hands and maybe settle at ridiculously low prices but in
the long run it undoubtedly means a lot of creditors will think
twice before they make loans to Indonesia," he added.

Only a handful of creditors, including Indonesia's powerful
bank restructuring agency (IBRA), have won bankruptcy cases since
new laws were introduced in 1998.

The IFC has been haggling over $13 million owed to it by PT
Panca Overseas Finance for two years and eventually filed a
bankruptcy petition on Sept. 6 after negotiations failed.

Its petition suffered a blow last week when a majority of
creditors voted in the Jakarta Commercial Court to accept Panca's
debt rescheduling program.

The commercial court will decide on Tuesday whether to ratify
last week's vote.

The IFC is challenging that vote, arguing that not all the
creditors who took part were genuine creditors.

"The composition plan has to be approved by 51 percent of
creditors representing two-thirds of the debt," van der Mandele
said.

The IFC has a 6 percent stake in Panca, which is majority
owned by PT Panincorp and has a total debt of $235 million,
spread among 19 creditors.

Lawyers for Panca were not available to comment on the IFC
challenge to the debt rescheduling plan vote.

Van der Mandele said that the Panca case also put the
spotlight on the government's corporate debt workout unit, the
Jakarta Initiative Taskforce (JITF), which had to remove Panca
from its books once court proceedings began.

The taskforce, which has restructured a cumulative $9.4
billion in debts since its inception in April 1998, acts as a
mediator between debtors and creditors but has no power to
enforce settlements.

The JITF said the Panca case was in the early stages of
mediation but could not comment further.

More generally, JITF chief operating officer Samuel Tobing
said he was perturbed by the ineptitude of the courts.

"If we were beginning to see quality decisions coming out of
the courts then we would be in better shape. But if courts cannot
issue quality decisions then we don't have a very good outlook
for the restructuring process," said Tobing.

The JITF is charged with restructuring a total of $12 billion
of debt by April this year, under a set of economic reforms
agreed with the International Monetary Fund.