State banks insist not to provide debt haircut

JAKARTA (JP): Ailing state banks will not allow the reduction of the debts of large corporations eligible for a debt restructuring program being prepared by the government, according to a senior bank official.

President of Bank Rakyat Indonesia (BRI) Djoko Santoso Mulyono said on Tuesday the debt trimming facility would only be provided if the corporate debtors could repay their debts "for good" in a single transaction.

"There will be no cut unless they can repay their debts directly in one payment transaction," he told a small group of reporters.

He said this was the government's final decision.

Senior economic ministers and the Bank Indonesia governor are currently preparing debt restructuring measures to bail out large corporations owing massive amounts of money to the country's seven state banks.

The Indonesian Bank Restructuring Agency recently assumed over Rp 100 trillion in non-performing loans provided to 1,200 companies by BRI, Bank Bumi Daya, Bank Pembangunan Indonesia, Bank Dagang Negara, Bank Ekspor Impor Indonesia, Bank Negara Indonesia and Bank Tabungan Negara.

Djoko said the government targeted to restructure at least 20 of the largest debtors as stipulated in the latest letter of intent to the IMF.

He said the criteria for eligibility to join the debt restructuring program included the ability to generate foreign exchange revenue, the number of employees, and the ability to induce and accelerate the recovery of the real sector.

The debt restructuring program would include various options like debt to equity swap, and interest rate reductions.

"But there will be no debt cut," he said.

"The government is expected to issue a ruling on the debt restructuring program at the end of this month," Djoko said.

Government officials have indicated that the 20 largest debtors of each of the seven state banks would risk liquidation if they failed to agree to restructuring measures.

The large corporate debtors, mostly companies owned by well- connected businessmen, have repeatedly demanded debt reductions as part of the debt restructuring measures.

As most of these companies are now short on liquid assets, they are unable to repay their loans in a single sum, which is the requirement for having their debts reduced.

One of the companies to be restructured by the government is PT Chandra Asri Petrochemical Center, controlled by tycoon Prajogo Pangestu, who made a surprising move last week by visiting President B.J. Habibie to discuss the company's restructuring plans.

Restructuring the repayment of these large state bank loans would provide momentum for restructuring of the whole real sector, which together with the bank restructuring program would be an essential catalyst for the country's economic recovery.

Coordinating Minister for Economy, Finance and Industry Ginandjar Kartasasmita, Finance Minister Bambang Subianto, State Minister of the Empowerment of State Enterprises Tanri Abeng, and Bank Indonesia Governor Sjahril Sabirin held a private meeting with several noted economists at Hotel Mulia Senayan on Tuesday to discuss the domestic corporate debt restructuring measures.

"The meeting focused on corporate restructuring," said an economist attending the session.

She said, however, that the government had no clear formula on how to deal with the large bad debt holders, which one noted economist referred to as "villains".

It is no secret that the large debtors at state banks are also the owners of the now defunct private banks which received billions of dollars in liquidity credit from the central bank.

Some members of the public were surprised by news reports this week that the government had not included the children of former president Soeharto, as well as several of their associates, from the list of 172 bankers barred from leaving the country. (rei)