IFC ends legal dispute with POF

IFC ends legal dispute with POF

Berni K. Moestafa, The Jakarta Post, Jakarta

The World Bank's commercial financing arm, the International
Finance Corporation (IFC), said it had reached a deal with
wayward debtor PT Panca Overseas Finance (POF), ending a legal
dispute that had turned into an indictment of Indonesia's
unpredictable legal system.

The IFC said POF's majority shareholder had agreed to repay
the US$13 million it owed IFC in a decision that marked an
unexpected end to three years of legal battles between the two.

"The settlement puts to an end a dispute that had attracted
the keen attention of both domestic and overseas creditors of
Indonesian companies," the foreign institution said in a
statement received on Wednesday.

The IFC filed a bankruptcy petition against POF in 2000, after
two years of trying to recoup some $13 million in debts from POF.

A court ruling last year turned down the petition on the
grounds that other POF creditors had voted against it, but the
IFC alleged that some of these creditors were fictitious, which
allowed the voting to swing in favor of POF.

POF, which claimed it owed creditors $40 million, won the vote
to repay its debt over a three-year period. The IFC's appeal to
the Supreme Court ended in vain.

The IFC did not say whether its recent deal with POF was part
of a court-approved debt restructuring scheme.

Its resident manager here Amitava Banerjee told Reuters he did
not know why POF's shareholders had agreed to repay the debt.

The case turned high profile when the World Bank took issue on
IFC's plight, and as another foreign investor got into trouble
over a similar legal dispute.

Canada-based insurance firm Manufacturer's Life Insurance
(Manulife) entered became embroiled in a court battle with the
owners of the now defunct PT Dharmala Sakti, its former partner
in insurance firm PT Asuransi Jiwa Manulife Indonesia.

Manulife charged the former owners with blocking the sale of
Dharmala's shares to Manulife, using paper companies to suddenly
produce backdated deals and to claim the shares were already
sold.

Separate investigations by the IFC and Manulife led to
suspicions of there being one mastermind, as a number of the same
names appear in both cases.

The IFC and Manulife cases underscored the weak protection
local bankruptcy courts afforded creditors against errant
debtors.

As a result, foreign lenders stepped up pressure against the
government to shake up the country's corruption prone courts.

"Increased protection for investors through the courts or
otherwise will act as an important catalyst of the further
recovery of the Indonesian economy," Banerjee said.

The latest deal with POF could pave the way for IFC to resume
its lending program to Indonesia, which had been suspended
following its dispute with POF.

The institution has an exposure of some $720 million in
Indonesia, its seventh largest country portfolio.

The IFC's investment activities are aimed at promoting
investment in developing countries, but the ongoing suspension
here could have the effect of deterring purely commercial foreign
investors from entering Indonesia.

The IFC also said it would drop legal action against POF over
the irregularities it believed had occurred during its earlier
court battle.

POF explained to the IFC that "these irregularities have been
the unintended result of an overambitious pursuit by management
of POF of its commercial objectives when IFC filed for
bankruptcy, and have also been the direct results of important
errors in judgment."