RI's bankruptcy laws ready by August but no quick fix

RI's bankruptcy laws ready by August but no quick fix

SINGAPORE (Dow Jones): Indonesia plans to have bankruptcy laws in place by August, but this and other measures are unlikely to lead to a quick recovery for the embattled country, a state minister told a business conference in Singapore yesterday.

"I would simply be pretending if I said that these measures would result in a quick recovery," Tanri Abeng, Indonesian State Minister for the Empowerment of State Enterprises told the Asia Leadership Forum. "But even the best medicine doesn't work overnight, and we should not hold overly big expectations for the timing of our macroeconomic recovery."

Tanri said Indonesia intends to build the foundations for a strong sustainable democracy, with a more transparent climate for business as part of the restructuring of its economic and political systems.

Tanri said among the country's top priorities in the short- term is to fix its ailing banking industry and restructure the corporate sector.

The country is working in cooperation with international accounting firms to separate sound banks from weak ones. The weak banks will either have to be closed, recapitalized or merged with stronger banks, he said.

He also said the government plans to implement a new banking law that will help establish a stronger banking system.

Two tasks must be completed as part of Indonesia's corporate restructuring, he said. The private corporate sector must be given a framework to restructure its foreign debt and the country must implement new bankruptcy laws.

Efforts are underway to resolve the private debt issue, he said, noting that a voluntary framework will be constructed through the Indonesian Debt Restructuring Agency, which has been agreed to by the country's major creditors.

"We realize that the voluntary framework for debt restructuring will have little impact unless we are able to modernize our bankruptcy system," Tanri said. "This will happen."

The government set up the Indonesian Bank Restructuring Agency earlier this year as part of its agreement with the International Monetary Fund to help restructure the beleaguered banking system.

It has since put 28 banks under supervision and has taken over the management of seven other private banks. Meanwhile, a total of 23 banks have closed down.

Turning to his own ministry, Tanri said the need to reform state-owned enterprises has become much more urgent than before.

There are 160 state-owned businesses in Indonesia with about 1,000 subsidiaries, most of which are poorly managed, he said.

"Only 30 percent of our state-owned enterprises are rated as financially healthy," Tanri said. "Returns on equity are extremely low and most of their product and service offerings are uncompetitive by world standards."

As a first step, the government will divest its stake in 12 state-owned companies during the current fiscal year, he said, adding that these divestments are expected to bring in about US$2 billion. The proceeds will be used to finance the budget deficit, he said.

The 12 companies on the for-sale list include five which are listed on the Jakarta Stock Exchange. The government named international investment banks earlier this month to manage the sales.

Tanri said the longer-term plan is to liberalize and privatize the rest of the state-owned enterprises.

The ministry is developing a master plan that will be completed in October, he said. It will identify which state-owned companies should be privatized, restructured or closed, he said.

Companies that will stay under government control will also be made more efficient and competitive, either through financial restructuring, changing management or modifying the regulatory requirements, he said.