Megawati signs long-awaited decree on SMEs' bad loans

Megawati signs long-awaited decree on SMEs' bad loans

The Jakarta Post, Jakarta

After months of delay, President Megawati Soekarnoputri signed on
Monday a presidential decree on the restructuring of bad loans
owed by small and medium enterprises (SMEs), an official at the
Office of the State Minister of Cooperatives and SMEs, M. Taufik.

Taufik was quoted by Antara as saying that according to
Presidential Decree No. 56/2002, SMEs that can settle their debts
within six months could obtain discounts on principal and
interest.

He added that the SMEs could also seek a rescheduling
facility.

He, however, explained that details on the reductions and
rescheduling terms would be jointly decided by Minister of
Finance Boediono and State Minister of State Enterprises
Laksamana Sukardi.

He said that these technical guidelines would be completed by
the two ministers within 30 days after the signing of the
presidential decree.

The decree will basically serve as the legal basis for the
restructuring of debts of around Rp 39 trillion (US$4.31 billion)
owed by more than 414,700 SMEs.

Antara said that the final decree was the 25th version.

The restructuring of the debts is crucial to allow the SMEs to
seek working capital from banks to expand their businesses. SMEs
employ a huge workforce.

The government had been previously somewhat undecided over
what restructuring policy to be taken.

Initially, there was strong pressure for the government to
take a populist policy by introducing, among other things, hefty
discounts of up to 50 percent on debt principals and interest
across-the-board for all SMEs.

The proponents of such policy, championed by the Office of the
State Minister of Cooperatives and SMEs, argued that the
favorable facility was needed because of the important role of
SMEs in the economy, and the fact that large businesses and rich
bank owners had received favorable treatment from the government.

But the opponents, mainly bank creditors, lobbied senior
economics ministers to drop the above proposal on grounds that
such a facility would threaten the financial condition of the
banks, which had been recapitalized by the government with the
help of taxpayers' money, sources have said.

A debt haircut facility as well as other soft restructuring
terms like longer maturities and a new refinancing facility are
also seen as unfair to other SMEs which have been conscientious
in settling their debts.

There has also been debate that the debts to be restructured
are not purely owed by SMEs because some of them are basically
consumer loans borrowed by rich people during the lending spree
of the 1997 precrisis period.

The final decree which authorizes ministers of finance and
state enterprises to decide on such technical details indicates
that the government has ignored political pressure to take a
populist policy.

The SME debts to be restructured are defined as individual,
nonperforming loans of less than Rp 5 billion. The debts are now
held by banks, including those under the control of the
Indonesian Bank Restructuring Agency (IBRA).