IFC lauds Dharmala review verdict

IFC lauds Dharmala review verdict

JAKARTA (JP): The International Finance Corporation (IFC)
hailed on Monday a Supreme Court review verdict which declared
publicly listed PT Dharmala Agrifood bankrupt, saying it would
encourage local indebted firms to restructure their debt in good
faith.

Charles Van Der Mandele, head of IFC's Special Operations Unit
in Indonesia, said the ruling indicated the bankruptcy law was
implemented correctly.

"We think that this ruling, at the end of the day, is an
important step forward, in the sense that the new bankruptcy law
has been now shown to work," he said on the sidelines of a one-
day conference on corporate governance.

Head of the Central Jakarta Commercial Court Sihol Sitompul,
confirmed on Monday that the Supreme Court had handed down review
verdicts on four cases, including a ruling on Dharmala Agrifood.

The Supreme Court's review decision to declare Dharmala
bankrupt overruled an earlier verdict in February.

IFC -- a private investment arm of the World Bank -- together
with ING Indonesia Bank and publicly listed Bank Niaga filed a
bankruptcy court action against Dharmala to recover loans worth
US$53.8 million.

Sihol said another Supreme Court review verdict annulled an
earlier verdict that declared state-owned construction firm PT
Hutama Karya bankrupt.

Two other Supreme Court review verdicts ruled to bankrupt PT
Pacific International Finance and a Semarang resident, Ira
Chrysanti Hadipranoto.

The bankruptcy court, originally created to help offshore
creditors settle their credits with debt-ridden domestic firms,
has been accused by observers not working as intended since its
inception last August.

Mandele noted that an effective implementation of the
bankruptcy law would have a positive impact on the future lending
and borrowing climate.

"The working of the law and the working of a good judiciary
system so that the IFC is able to exercise its rights as a
creditor, is of course a very important element in determining
whether the IFC will invest in any country."

Mandele said the Supreme Court's decision on Dharmala should
encourage "corporate restructuring of many Indonesian companies
that are currently negotiating with creditors".

He said pursuing a bankruptcy proceeding was IFC's last option
to recover loans, whenever negotiation with debtors was no longer
viable.

"As a developmental institution, we are looking at ongoing
concern solutions. It is not our interest to be part of the
liquidation of any company if that can be avoided. That is an
extreme measure and we do not like extreme measures."

He said 40 percent of IFC's portfolio in the country were non-
performing accounts.

According to the World Bank's March 1999 report, the IFC's
$900 million portfolio of 42 corporate clients in the country has
been hard hit by the crisis. The IFC has 14 clients in arrears or
with rescheduling needs.

So far, the IFC has agreed to restructure loans to two local
debtors, namely Hotel Santika Jakarta and multifinance firm BBL
Dharmala, a sister company of Dharmala Agrifood. (02/rid)