Review spots faults in Salim's MSAA
Berni K. Moestafa, The Jakarta Post, Jakarta
Unreasonable, unfair and void is how an independent legal review describes a US$5 billion debt settlement deal of the Salim Group that has turned the government into an impotent creditor.
The debt deal is one of many that form the legal basis for recouping some $13 billion in public funds lent to ailing banks in the late 1990s.
Infamous among them are the Master of Acquisition and Settlement Agreements (MSAAs), one of which Salim signed in 1998.
The legal opinion on Salim's MSAA, although done in September 2000, has come to the forefront amid renewed debate on the revision of such debt deals.
Salim signed the MSAA with the Indonesian Bank Restructuring Agency (IBRA) to avoid prosecution after its Bank Central Asia (BCA) misused Rp 52.72 trillion (about $5.04 billion) in state- sponsored emergency liquidity loans.
Under the MSAA, Salim agreed to repay the funds by way of surrendering assets of equal value to IBRA.
The agency then sells the assets through PT Holdiko Perkasa, a company it managed in conjunction with Salim.
But a review of the MSAA by law firm Tumbuan and Pane pointed out flaws that experts said lie at the heart of IBRA's problem in getting Salim to pay its debts.
One such flaw is that Salim need not surrender more assets to IBRA, if those already surrendered decrease in value.
This comes despite the fact that in some of Salim companies, IBRA does not have enough shares to assume management control and influence their value.
"If indeed the value of the assets decline, which would affect their acquisition value, it is unreasonable and inequitable for IBRA to burden the risk," the law firm said in its review.
Based on this MSAA, Holdiko's recovery rate from the sale of Salim's assets stood at 48.6 percent as of December 2001.
The law firm added that since Holdiko was jointly owned by Salim, the transfer of assets to IBRA, "is in fact a debt repayment of the shareholders (Salim) as a debtor to itself".
Consequently, the release and discharge clause, which frees Salim from prosecution, should be void, the law firm concluded.
It said the clause was also void if a drop in Salim's assets value prevented the full repayment of Salim's debts.
Furthermore, the release and discharge clause was an out-of- court settlement binding only IBRA and the debtors, it said.
As such, it explained, the clause cannot prevent the General Attorney's Office from initiating prosecution.
Law firm Tumbuan and Pane reviewed the agreement upon the government's request, after public debate broke out on whether or not to revise the MSAAs.
Debtors, many of whom are politically well-connected, have opposed a revision. And to date there has been no follow up on the results of the legal review since it was held in 2000.
The plan for a revision has resurfaced this time for the umbrella agreement, on which deals like the MSAA is based.
The agreement pegs MSAA debtors and others to a four-year payment period, which for many end this year.
Most debtors have skipped payment and have breached their debt deals, but have faced no legal consequences.
The IBRA-initiated revision extends the deadline to up to 10 years, while at the same time effectively lowers the interest rates debtors must pay.
Critics have lambasted these incentives and urged IBRA to take stronger legal action against uncooperative debtors.
The government remains divided over the issue, and a team has been set up to study the debt extension plan.