IMF wants legal action against bad debtors

Berni K. Moestafa, The Jakarta Post, Jakarta

Pressure has risen for the government to be firm on bad debtors, as the International Monetary Fund (IMF) called for tougher legal actions against them on Friday and not softer payment terms.

The IMF stance may be the final blow to a plan that allows bad debtors a further grace period.

On Thursday, a senior economic minister claimed that most members of the Cabinet did not approve of the plan.

The IMF senior advisor for the Asia Pacific department, Daniel Citrin said the issue was not about whether a longer debt payment period could ensure the government got back its loans.

I don't think that's the issue, the key issue is legal certainty," he said after meeting officials of the Indonesian Bank Restructuring Agency (IBRA).

Citrin and his team arrived in Jakarta on Thursday for a two week review of the government's progress in meeting reform targets outlined in its Letter of Intent (LoI).

The debt extension plan drew immediate criticism when it was first leaked to the public in December last year.

It extends debtors' payment period to 10 years from four, and effectively lowers the interest rates they must pay.

The plan applies to former bankers, whose banks received billions of U.S. dollars to bail them out from the 1997 financial crisis.

Most of the funds, it turned out, had been misused. An out-of- court deal with IBRA spared bankers from prosecution, providing they settle their debts within a four year period.

For many the deadline falls this year. Almost all have been evading debt payment, which makes them liable for prosecution.

That option, however, has failed as IBRA has lost nearly all of its court cases.

Blaming its poor record on the country's weak judicial system, the agency proposed instead the debt extension plan.

But legal experts lashed back citing that IBRA fared poorly in the courts because it failed to use the special legal powers it possessed.

Among these powers, is the authority to seize debtors' assets, and send debtors to prison if they are uncooperative.

Citrin's call for legal certainty falls in line with what the government had already promised the IMF in its LoI. Meeting the LoI targets is a prerequisite for obtaining the IMF loans.

Signed in December last year, the LoI requires IBRA to make more use of its legal powers as set out under government regulation No. 17/1999.