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.