Restructuring plan for SMEs hits snags
Adianto P. Simamora, The Jakarta Post, Jakarta
The formulation of a policy to restructure the bad debts owed by small and medium enterprises (SMEs) has turned out to be complex than expected as government officials are now divided on what approach should be taken.
Reports that the International Monetary Fund is also unhappy with plans to provide a debt reduction facility for SMEs seems to have created renewed confusion in the Ministry of Cooperatives, which has been assigned the task of drafting a presidential decree on an SME debt restructuring scheme.
The government was supposed to complete the SME debt restructuring plan this month. Under the scheme, SMEs making repayments up-front in cash would enjoy a generous 50 percent reduction in debt principal plus a 100 percent cut in outstanding interest and penalties.
But Vice President Hamzah Haz was quoted as saying last week that he disagreed with the debt reduction proposal.
He said that it would be better for the debts to be rescheduled and to provide the SMEs with refinancing facilities.
Hamzah made the statement following reports that the IMF was concerned over the negative impact of any debt reduction on the country's banking sector and the overall economy.
The IMF is providing a multibillion dollar bailout facility to help finance the country's economic reform program.
Minister of Cooperatives Alimarwan Hanan said that his ministry would have to seek other alternatives if the Vice President or President Megawati Soekarnoputri disagreed with his proposals.
He said that he was still unaware of the IMF's objections, although he said that the Fund had no right to oppose the proposed debt reduction scheme.
Sources said that the Ministry of Finance and the Office of the State Minister of State Enterprises had also objected to the debt reduction proposal.
Bad debts owed by SMEs are estimated at around Rp 39 trillion (US$3.9 billion). But the debtors (over 414,000) are not necessarily SMEs as the government has simply categorized debtors with individual debts of up to Rp 5 billion as SME debtors. In fact, some of the debts are consumer credit loans, credit card loans or loans owed by businesses linked to large groups.
The Indonesian Bank Restructuring Agency (IBRA) has taken over most of the debts, with the remaining small portion either owed to state-owned banks or transferred to the Directorate General for Debt Recovery and State Disposals at the finance ministry.
IBRA has also sold a large chunk of the debts to Bank Danamon and Bank Artha Graha.
The SME debt restructuring scheme is also facing legal snags. Under the plan, SMEs would be exempted from paying income tax on the gains obtained from debt and interest relief, which would be a violation of the existing tax law.
Meanwhile, economists urged the government to be selective in extending any debt restructuring facility as not all so-called SME debtors were true SMEs.
University of Gadjah Mada economist Sri Adiningsih said over the weekend that a proper assessment of who should really be entitled to a favorable debt restructuring package was crucial for ensuring that the program benefited the intended targets.
Bustanul Arifin, an economist with the Institute for the Development of Economics and Finance (Indef) concurred with Sri, but also warned that the SME restructuring scheme might be used by politicians to garner popularity ahead of the 2004 general election.