New ruling allows IBRA to provide debt reduction
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)