Intelligence chief urges quick decision on debt extension plan

Berni K. Moestafa, The Jakarta Post, Jakarta

Chief of the State Intelligence Agency (BIN), Hendropriyono urged the government to immediately finalize the revision of a controversial debt payment extension plan, warning indecisiveness would trigger a backlash from the public.

He said the present scheme to allow huge debtors of the state a longer payment period, had already provoked negative public reactions.

Hendropriyono did not say what the reactions were but warned that "if the government doesn't do anything, that's bad."

His statement comes amid lingering uncertainty over the review of a debt extension plan, which has invited public criticism.

"When the government came out with the revised debt payment scheme, it sparked public reaction. This, of course I reported to the President and the DPR (House of Representatives)," he was quoted as saying by Antara on Wednesday.

Warnings of a "public reaction" adds pressure to scrap the current debt payment extension scheme, after signs that the government itself was divided over the issue. In addition the International Monetary Fund (IMF) said legal certainty instead of a payment extension was the key here.

Last December, the Financial Sector Policy Committee (FSPC) approved a revised debt payment scheme for debtors of the Indonesian Bank Restructuring Agency (IBRA).

Proposed by IBRA, the plan extends the debt payment period to 10 years from four. It effectively lowers the interest rates to a minimum of nine percent from around 16 percent, well under Bank Indonesia's benchmark rates.

The plan applies to several former bankers, whose banks the government bailed out after the impact of the 1997 financial crisis.

The government had issued some Rp 630 billion (about US$63 billion) worth of bonds to save the local banking sector from total collapse.

However, an audit later revealed that bankers abused Rp 138.4 trillion of the funds. To escape prosecution, they surrendered their banks to IBRA and agreed to settle their debts within a four-year period.

Three years on however, IBRA was yet to see one rupiah of that. Resorting to legal action proved futile, since it turned out that IBRA's contracts with debtors lacked legal power.

As the deadline for most debtors drew near, IBRA offered late last year the controversial extension and softer interest rates.

This drew fire from the public. Analysts and legislators criticized the government for siding with the wealthy debtors instead of the public, who effectively owns the money.

The government revealed the debt extension plan at the same time that it raised fuel, electricity and telephone prices.

Due to the price hikes, inflation soared last month and worsened purchasing power for consumers.

State Minister of National Development Planning, Kwik Kian Gie further argued that the debt extension plan would not necessarily ensure payment.

An interministerial team is now at work on the plan, however critics demanded that the government scrap the plan altogether.

The small team was supposed to present its conclusions before a Cabinet meeting last Monday, but did not.

"One can do the right thing or the wrong thing, but to do nothing is wrong for sure," Hendropriyono added.

Elsewhere, the IMF ended its two-week review on Indonesia's reform progress, reminding the government to do more to reclaim its money from IBRA debtors.

"Discussions were held with the authorities on the need to enhance recovery from the shareholder settlement agreements with former bank owners," it said in a statement.

The IMF urged the government to form a clear strategy to cope with the debtors, reiterating that legal certainty was vital.

"Strengthening compliance as well as securing legal certainty for both the government and former bank owners must be integral elements of the strategy," it said.