New debt restructuring scheme for SMEs out in March

The Jakarta Post, Jakarta

Responding to snags in recovering some Rp 39 trillion (about US$3.8 billion) of debts from small and midsize enterprises (SMEs), the government is drafting a new debt restructuring scheme for SMEs due out by the end of March.

The new plan could see SME debtors get a 100 percent cut on interest and penalty payments, and possibly a 50 percent debt reduction.

If approved, it will replace the current debt payment scheme set to expire in April. The present scheme also grants a 100 percent cut on interest and penalty payments, but limits debt cuts to only 25 percent.

Plans for a new debt restructuring scheme comes amid protests by SME debtors fearing their assets could be sized and auctioned off by IBRA and bank creditors once the April deadline passes without a settlement.

Minister for Cooperatives Alimarwan Hanan said he had also proposed slapping a one-year suspension on the sale of seized SME assets.

He said that during that year, debtors who show prospects for payment should be allowed a debt restructuring deal.

"For others who simply cannot pay, we're sorry to say that we will auction off their assets," Alimarwan told reporters after he presented the plan to President Megawati Soekarnoputri.

Under the new plan, Alimarwan said that SMES able to settle their debts upfront and in cash, should be allowed a 50 percent debt cut.

"If they can settle (at least 60 percent) of their debt within a year, they should be given a 40 percent debt haircut," he added.

Those categorized as SMEs have debts to the government that total about Rp 5 billion.

At present, there are some 414,000 small debtors that owe Rp 39.61 trillion to IBRA, state-owned banks and the directorate general for accounts receivable and state auctioning.

Many debtors failed to pay even though they had the money available, as banks from which they took the loans went bust during the financial crisis.

Their loans changed ownership, with most ending up at the Indonesian Bank Restructuring Agency (IBRA) and some state-owned banks.

Confusion over whom to pay how much, has hindered debtors from settling their debts. Over time, however, their debts have swelled in line with soaring interest rates.

Bank analyst Mirza Adityaswara said small debtors should not be discriminated against in relation to their larger counterparts in IBRA, for whom the government may extend the debt payment period to by up to six years.

But he suspected that a large portion of the SME debtors were in fact private debtors with consumer loans.

Bank Danamon has claimed that some 90 percent of the SME loans it had purchased from IBRA were indeed not SMEs.

Some of them were consumer loans and the bank now has trouble collecting these.