New ruling allows IBRA to provide debt reduction

JAKARTA (JP): The government issued a new ruling on Tuesday to help accelerate the massive debt restructuring work of the Indonesian Bank Restructuring Agency (IBRA), including an option for the agency to provide debt reduction.

IBRA deputy chairman Eko S. Budianto said the debt haircut facility would be granted only after other restructuring alternatives failed to completely settle the debt of a debtor.

"It will only be given on a case-by-case basis," Eko told a media conference.

He said an independent financial and legal auditor would be appointed by IBRA to ensure that a debtor was eligible for the debt reduction facility.

Eko said debtors asking for the facility must be those who have proven to be cooperative with the agency in the restructuring of their debts.

He also said there must have been no irregularities conducted by the debtors, including marking up the value of their asset collateral, misusing a bank loan or making transactions which inflicted financial losses to the company.

"The independent auditors will decide whether there are irregularities," Eko said.

Many bank debtors had marked up the value of their collateral in the past in order to obtain a greater amount of loans.

"Before giving a reduction, IBRA has to be certain that the debtor has made every effort to repay the debt, and the indebted companies have prospects of continuing their business," Eko said.

He said IBRA would put a priority on reducing the interest rate of the debt, and if it was not sufficient the agency would reduce the principal.

IBRA currently controls over Rp 230 trillion worth of nonperforming loans transferred by closed, nationalized and recapitalized banks.

One of the agency's key tasks is to restructure and recover bad loans in a bid to help revive the country's ailing corporate sector and raise enough cash to help finance the government bank restructuring program.

The agency has been criticized for its slowness in reaching a debt restructuring agreement with the bad debtors, particularly companies owned by well-connected businessmen.

There has been pressure on IBRA to provide the debt reduction, a policy which has long been shunned by the government and the agency.

Eko said the new ruling also stipulated that U.S. dollar debts converted unilaterally by the banks into rupiah debts could be converted back again to the initial dollar-based debts.

Many debtors have complained that the banks forced debt conversion at a time when the rupiah plunged to its lowest level against the U.S. dollar in 1997 and 1998.

Eko said IBRA would also provide a discount facility for cooperative debtors who wish to repay debts in cash all at once.

He said the size of the discount would be 125 percent of the prevailing interest rate at IBRA at the time payment is made.

He said the discount facility would be based on the principle of time value of money, in which money received now was more valuable than money received later.

Eko said under the new ruling, IBRA could only provide a maximum 10-year debt rescheduling plus a two-year grace period.

He said debt rescheduling of more than 10 years could only be decided by the Financial Sector Policy Committee (FSPC), which issued the new debt restructuring ruling.

The FSPC groups several senior economic ministers led by the Coordinating Minister for the Economy, Finance and Industry Kwik Kian Gie.

The new ruling also provides other guidelines for IBRA to settle small-scale debts.

"The new ruling basically highlights what we can do and what we mustn't do," Eko said.

"This will help accelerate the debt restructuring process."(rei)