JITF unlikely to clear $29b debt load

Berni K. Moestafa, The Jakarta Post, Jakarta

The Jakarta Initiative Task Force (JITF) may not be able to settle all of the US$29 billion in debt it must help restructure, but analysts see progress as companies press their massive debts to more sustainable levels.

JITF chief operating officer Samuel Tobing said the agency had finalized debt restructuring deals worth $17.4 billion, of which $3.4 billion was made over the last nine months.

With a total portfolio of $29 billion and growing, it must settle at least another $11.6 billion before its mandate expires by the end of 2003.

"I don't think we can settle everything by then (2003), but we'll keep working on it anyway," Samuel said last week.

Founded in 1998 by the government, JITF aims to help reduce the huge debt overhang in the private sector resulting from the 1997 economic crisis.

Bad debts account for nearly half of the around $117 billion in total corporate debts as of late 2000.

JITF is mediating the debt restructuring between companies and their mainly foreign creditors.

Its mandate should have expired last year but was extended because companies continued to seek JITF mediation. Despite the time pressure and a pile of unfinished debt talks, JITF might not turn down mediation requests just yet, according to Samuel.

"We might get more debts and we won't reject them," he said, explaining that the agency would work on the new debts if possible.

But the inflow of more mediation requests -- this year worth $7 billion alone -- signals what analysts said was progress in an otherwise gloomy situation.

"Considering the complexity of debt restructuring and the many parties involved, they (JITF) have done quite well," said Ferry Hartoyo, head of research at PT DBS Vickers Securities.

Corporate debt restructuring has advanced slowly under the weight of political instability that has impinged on the economy with a volatile rupiah, security fears and poor legal protection.

JITF is not the only restructuring medium as the Indonesian Bank Restructuring Agency (IBRA) is tackling another $30 billion in bank loans that have become nonperforming loans.

Outside both agencies, companies like publicly listed car manufacturer PT Astra Internasional seek their own debt deals.

"The first priority should be for the banking and corporate sectors to speed up the resolution of the corporate debt overhang so that financial flows for investment and working capital can resume," said the World Bank's summary of its latest private sector development strategy for Indonesia, issued last month.

Debt restructuring unfreezes companies' assets for productive use that can spur the overall economy. In turn, the mere growth in the economy reduces the debt burden by the accumulation of more capital to repay the debts.

Ferry said that what drove past debt restructuring deals had been the improved economic environment.

"It has come to the point where people are starting to make money but must spend most of it on debts, while investing it would have been a better decision," he explained.

Faced with this, he said, companies sought debt restructuring deals to liberate money for investment and working capital. "They ask for a longer payment period or more lenient conditions."

Standard Chartered Bank economist Fauzi Ichsan agreed that JITF was making steady progress, but cautioned against the quality of the restructuring deals.

He said the absence of a proper bankruptcy court was taking away creditors' leverage to deal with recalcitrant debtors.

"Creditors come to deals as it is better to agree to a small amount rather than get nothing at all," he said.

The state budget, he added, had the most to lose from this situation as it had to be used to bail out local banks if they could not declare a debtor bankrupt to seize its assets.