No restructuring facility for SME debts linked to huge groups

Adianto P. Simamora, The Jakarta Post, Jakarta

The government will not provide a restructuring facility for small-scale debts owed by companies that are linked to large business groups, according to the draft of a presidential decree on the restructuring of debts owed by small and medium enterprises (SMEs).

The draft decree, a copy of which has obtained by The Jakarta Post, states that only SMEs with individual bad debts of equal to or less than Rp 5 billion are eligible to avail of the restructuring facility.

It further states that the restructuring facility is crucial to helping revive SMEs and accelerating the country's economic recovery.

There are at the present time outstanding debts worth Rp 39.6 trillion made up of individual bad debts of equal to or below Rp 5 billion owed to the Indonesian Bank Restructuring Agency (IBRA), state-owned banks and the Directorate General of Debt Recovery and State Auctions. A large chunk of the debts are owed to IBRA.

IBRA took over the debts from closed or ailing banks. The agency categorizes these debts as SME debts because of their small individual size of equal to or less than Rp 5 billion.

When the government announced plans to launch a new restructuring facility for this category of debt, many expressed concern particularly as a large part of the debts were actually owed by businesses linked to large business groups or consumer finance loans owed by financially well-off people.

Under the new restructuring scheme that will replace the existing scheme, which is due to expire next month, creditors are to be banned for one year from seizing and auctioning the assets of indebted SMEs so as to give the debt restructuring scheme a chance to work first.

The restructuring plan also provides for a 100 percent cut in interest and penalties. A 50 percent debt principal reduction will also be available to SME debtors who repay their debts in cash.

The government additionally plans to provide a 40 percent debt principal reduction for debtors who can settle their debts within a year.

For debtors who are unable to repay their debts, they will be allowed a five-year debt rescheduling period, plus a two-year grace period, and an interest rate of 9 percent.

If they still cannot pay their debts after this, the government will auction off their assets, the draft regulation states.

Economists said that debt restructuring for SMEs was important for the country's economic development as they employed a huge number of people and had been relatively unscathed by the 1998 economic crisis.