Kadin urges foreign creditors to be forgiving

JAKARTA (JP): Chairman of the Indonesian Chamber of Commerce and Industry (Kadin) Aburizal Bakrie said on Saturday that providing debt forgiveness to the country's indebted private sector would be the best way to settle some US$64 billion in overseas debts.

Aburizal said that a court settlement alternative would not benefit both the foreign creditors and domestic debtors, as all of the latter's assets would be far from enough to cover the obligations.

"Without debt forgiveness, the local businessmen will not be able to repay their debts," he told reporters, pointing out that the sharp plunge in the value of the rupiah against the U.S. dollar had tripled the value of the debt, but sharply cut the value of the collateral.

He added that the debt forgiveness could include reduction in the principal and interest rate, and extension of the maturity.

"It will be difficult for domestic businessmen to completely repay their debts even in 100 years because they're selling products in the domestic market, while their debts are in dollars. So there must be debt forgiveness," he said.

The crisis-hit economy is expected to shrink by 15 percent this year, 5 percent next year, and will take another five to seven years before economic growth resumes to the pre-crisis level - in an optimistic scenario.

Aburizal believes the country's new bankruptcy law, enacted in August, won't be effective in solving the private sector overseas debt puzzle.

"A court settlement will cause the debtors to lose their assets, but the creditors won't be able to recover much of their money either. So this is not a win-win solution," he said.

He urged the local businessmen to individually renegotiate their debts with the foreign creditors and ask for forgiveness.

"Don't give up easily. I'm certain the domestic business world still has bright prospects. The large population and abundant natural resources are a guarantee of our economic future," he said.

He added that the government had provided incentives and eliminated regulatory obstacles to moving out of the court debt restructuring agreement.

Under the so-called Jakarta Initiative program launched last month, the government revised certain regulations including the ruling on the revaluation of fixed assets, the tax ruling on reduction of foreign debt, and the relaxation of merger criteria.

The Jakarta Initiative is meant to complement the debt rescheduling scheme provided by the Indonesian Debt Restructuring Agency (INDRA), in which the private sector overseas debt can be extended over eight years as a result of a gentlemens agreement in Frankfurt in June between the representatives of local debtors and representatives of foreign creditors.

INDRA will guarantee the debtors with a lock-in exchange rate which can be more favorable if the rupiah improves against the dollar.

So far, none of the country's 2,000 indebted companies have enrolled with INDRA, which opens for entries in one year, starting early August.

Aburizal said that the eight year debt rescheduling agreed in Frankfurt was still a huge burden for the country's debt ridden companies, without debt reduction.

"But the Frankfurt agreement can be used as a benchmark for debt settlement," he said, pointing out that each debtor and creditor can use it as a framework for a case by case debt settlement.

Aburizal also expressed concern about the Jakarta Initiative as it doesn't guarantee an out of court debt settlement.

A commercial court to process bankruptcy requests by creditors striving to liquidate debtors assets was launched in August and has received eight petitions, in which three of the cases have won court approval for a temporary suspension of debt payment and another was denied.

The Jakarta Commercial Court last week dismissed the bankruptcy request filed by the Singapore branch of American Express Bank against publicly listed PT Ometraco Corporation, because the bank's charge against the latter overlapped with previous claims against the same company. (rei)