Stalling debt workout

Stalling debt workout

One cannot help but feel flabbergasted by the disclosure by
the executive secretary of the Financial Sector Policy Committee
(FSPC), Syafruddin Tumenggung, that the finance minister had
simply refused to implement hundreds of debt restructuring deals
already approved by the committee. Syafruddin did not specify the
amount of debts involved, but the total must have been quite
large because only deals worth over Rp 1 trillion require FSPC
approval.

He told a seminar on Wednesday that the finance minister and
the Indonesian Bank Restructuring Agency (IBRA) -- which is under
the finance ministry -- had thus far rejected 140 deals endorsed
by the FSPC for unknown reasons.

Whatever the rationale behind the finance minister's defiance,
his refusal to execute so many debt workout deals is simply mind-
boggling, given the crucial importance of corporate debt
restructuring for fueling economic recovery.

What is then the point of IBRA submitting to the FSPC debt
workout deals the agency has processed if it has its own
discretionary power to executive or turn down decisions of the
committee?

What makes the issue unnecessarily irksome is that the finance
minister (Prijadi Praptosuhardjo up until June 12) is ex officio
a member of the FSPC, which is headed by the coordinating
minister for the economy (Rizal Ramli up until June 12) and
consists of several other economics ministers. And the FSPC is
the governing board of IBRA, even though organizationally IBRA is
a unit of the finance ministry.

Moreover, all debt restructuring deals submitted to the FSPC
for approval are procedurally based on the schemes worked out by
IBRA's loan restructuring department.

Even though the FSPC was criticized last year for endorsing
several questionable debt workout deals that were considered to
benefit large conglomerate debtors, the finance minister's
conduct in this instance was entirely unprofessional. This only
validates the public's notion of how poor indeed is the teamwork
of the Cabinet's economics team.

True, Prijadi and Rizal were not known to enjoy an excellent
rapport and both often did not shy away from publicly airing
their differences of opinion. Yet Prijadi should have fought all
out for his stance at the FSPC assessment meetings instead of
expressing his dissent after decisions had been made. Or in cases
of suspected collusive decisions or grossly questionable deals,
the finance minister could have, as a last resort, alerted the
IBRA Oversight Committee that regularly reviews FSPC decisions.

As the FSPC is only a policy task force and is not
organizationally equipped with resources for technical
administration, it is the finance minister and IBRA that should
bear the full responsibility for executing all decisions already
taken by the FSPC.

Simply casting aside ministerial-committee decisions on deals
that often take IBRA up to 18 months to work out is not only
quite irresponsible, but is also damaging to the process of
economic recovery. The slow progress in corporate debt
restructuring has been one of the main causes that have kept the
economy bleeding since the 1997 financial crisis.

Only by restructuring their debts will the companies regain
access to new credit lines to resume full-capacity operations and
help strengthen economic recovery. Until the Rp 280 trillion ($25
billion) in bad debts taken over by IBRA from closed and
nationalized banks are restructured or resolved, the nascent
economic recovery will remain fragile.

Though one cannot be sure as to whether the problem was one of
the reasons behind Prijadi's dismissal from the Cabinet last week
-- after all, nobody can guess the rationale behind President
Abdurrahman Wahid's regular tinkering with his Cabinet -- Rizal's
appointment to replace Prijadi last week could help accelerate
the corporate debt restructuring program. As the finance
minister, Rizal also directly supervises IBRA and all state
companies.

Irrespective of several controversial or questionable
decisions Rizal made in the past, he is known for his courage to
make fast, bold decisions -- something sorely needed during the
economic crisis in which the nation has been mired since late
1997.

For those who are concerned that Rizal might go overboard with
his vast authority now, it is reassuring to know that clear-cut
guidelines for corporate debt restructuring, formulated early
this year in cooperation with the International Monetary Fund,
have been enforced in IBRA. Any major debt workout deals made by
IBRA can be assessed by the FSPC or the Oversight Committee
against the guidelines that emphasize transparency,
accountability and independent reviews of debtors' future
viability.