Restructuring of largest debtors delayed

JAKARTA (JP): The government will not be able to complete a loan restructuring agreement with the 20 largest corporate debtors of state banks by the April 30 deadline, as promised to the IMF, chairman of the Jakarta Initiative taskforce Yusuf Anwar said on Thursday.

But he expected the delay would not cause any interruption to the disbursement of the IMF's bailout loan commitment to the country.

"I think the International Monetary Fund will be reasonable enough," Yusuf told reporters on the sidelines of a seminar on debt restructuring organized by the Castle consulting group.

He declined to provide further details.

The seminar was attended by several debt restructuring experts including Thomas Tan of Bank Bali, Aliza Knox of the Boston Consulting Group, John Knight of Chase Manhattan Bank and Frank Shea of Bank Danamon.

The government promised in the latest letter of intent to the IMF that it would restructure 20 of the largest debts to state banks by April 30.

The Indonesian Bank Restructuring Agency (IBRA) has assumed over Rp 100 trillion in non-performing loans from the country's seven state banks. The banks are: Bank Rakyat Indonesia, Bank Dagang Negara, Bank Bumi Daya, Bank Negara Indonesia, Bank Ekspor Impor Indonesia, Bank Tabungan Negara and Bank Pembangunan Indonesia.

The loans are believed to have been given to companies owned by the country's politically well-connected businesspeople, including former president Soeharto's children and their cronies.

The companies include PT Chandra Asri Petrochemical Center, car maker PT Timor Putra Nasional and cement maker PT Semen Cibinong.

Analysts believe the delay in the loan restructuring measures could further hurt the already low confidence in the economy, as the international business community could see it as an indication of a stalled economic reform program.

"The question now is whether the World Bank and the IMF will continue pouring in their money as scheduled," said Rino Agung Effendi, an adviser to the Indonesian Debt Restructuring Agency (INDRA).

Rino admitted that the debt restructuring of the country's corporate sector has been slower than initially anticipated.

He explained that the debt restructuring was complicated because of the large amount of debt and the great numbers of debtors and creditors.

"They have various different interests and conditions, making it more difficult to encourage them to sit at one table," Rino said of the parties involved in the restructuring process.

Minister of Finance Bambang Subianto has turned down demands to convert the non-performing corporate loans with negative cashflow into government equity.

State banks also rejected proposals for a debt reduction, unless the debtors could pay back the debts with a single payment.

The government has repeatedly said that debtors who cannot reach an agreement will be liquidated.

But a government source said it would be problematic for the government to foreclose on the assets of debtors, because their value is in most cases lower than the loans themselves.

"The government is pushing hard to persuade the debtors to surrender their valuable assets, many of which are overseas assets," he said.

However, Rino said there are now indications that both debtors and creditors have begun to realize that postponing the restructuring program will cost them more.

He pointed out that there are now more indebted companies requesting that the Jakarta Initiative facilitate negotiations with their creditors.

He suggested that the government provide incentives for both debtors and creditors to work out debt restructuring agreements.

He added that a decline in domestic interest rates was also a key factor.

Indonesia has about US$80 billion in corporate foreign debt, and about Rp 600 trillion in local currency debt.

The debt restructuring deal is essential for the country to recover economically. (rei)