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).