The 1997–98 financial crisis in Indonesia spawned a wave of law reform to deal with the crisis and its aftermath. Many of the ensuing legal, judicial, and governance reforms were included as part of Indonesia’s International Monetary Fund (IMF)-supported economic recovery programs. The initial focus of these legal, judicial, and governance reforms under the IMF-supported programs was to address the problem of widespread corporate insolvencies, which were a major factor in the collapse of the banking sector.1 In this regard, the principal elements of Indonesia’s strategy for corporate debt and bank restructuring consisted of (1) adopting a modern bankruptcy law; (2) establishing a new, specialized Commercial Court to handle insolvencies; (3) facilitating out-of-court corporate debt workouts; (4) stabilizing and strengthening the banking sector through the establishment of the Indonesian Bank Restructuring Agency (IBRA); and (5) eliminating foreign exchange rate risk on future debt-service payments for debtors and creditors reaching debt restructuring agreements through the Indonesian Debt Restructuring Agency.2
This chapter examines the third element of the strategy outlined above—the facilitation of out-of-court corporate debt workouts. The role of such facilitation was entrusted to the Jakarta Initiative Task Force (JITF), a new governmental agency inaugurated in November 1998. By the time of its winding-up in December 2003, the JITF had handled well over 100 cases, involving close to US$30 billion of corporate debt.3 The chapter will examine the design, establishment, operations, and impact of the JITF and will seek to derive from that examination a few general lessons for law reform and related technical assistance.
The remainder of the chapter is organized as follows. The first section describes the problem of corporate debt overhang, while the second section discusses how Indonesia sought to resolve the corporate debt problem through the design and establishment of the JITF. Next, the challenges faced by the JITF are examined, as well as this agency’s achievements and impact. The final section draws some broad lessons for law reform and related technical assistance.
The Overhang of Corporate Debt
Following on from the financial crisis that hit Indonesia in 1997–98, the country faced the problem of widespread corporate defaults, which, in turn, were a major factor in the collapse of the banking system. The scale of the problem is demonstrated by the massive figures involved. As of November 1998, total nonfinancial corporate debt was estimated at about US$120 billion. Of this, roughly 60 percent comprised external debt and 40 percent was owed to domestic creditors. The amount owed externally represented close to half of Indonesia’s total external debt; corporate debt, therefore, represented a huge international exposure for Indonesia. In addition, much of the debt owed by corporations to domestic creditors was denominated in foreign currency. As a result, about 75 percent of total corporate debt was denominated in foreign currency.4
With the rapid collapse of the rupiah during the crisis, most companies were unable to service the huge foreign currency debt, and almost half of all corporations were thought to be insolvent.5 Given the size of the figures cited above, there was no question about the urgent need to resolve the corporate sector crisis in Indonesia.6 The question, however, was how the large number of corporate insolvencies would be resolved. While so many insolvencies occurring at the same time would test even the most hardy judicial systems, the problem was particularly acute in Indonesia, given its weak judicial system and the relative lack of experience in the country on insolvency matters. As such, Indonesia was faced with the real potential that the insolvencies would overwhelm the judicial system, in particular, the newly established Commercial Court with jurisdiction for insolvency cases.7
Facilitating Out-of-Court Workouts—Design and Establishment of the JITF
Faced with a large number of corporate insolvencies that could overwhelm the judicial system, Indonesia recognized that an out-of-court negotiating framework would be critical in assisting with the resolution of corporate debt.8 This realization led to the establishment of the JITF in November 1998. However, before turning to the JITF, it is useful to step back and to take a look at the underlying economic rationale for such out-of-court negotiating frameworks.
Rationale for Out-of-Court Frameworks
In principle, to avoid the risks and costs of formal insolvency proceedings, debtors and creditors prefer out-of-court negotiations. The potential initiation of formal insolvency proceedings, with its risks and costs, provides an incentive to conclude out-of-court agreements. If the laws, practices, and decisions regarding rights and obligations that are applicable in the formal system provide clear and predictable guidelines on rights, obligations, and their enforcement, then, in the out-of-court framework, debtors and creditors should be able to assess their respective leverage and make commercially reasonable decisions. Thus, the law, practices, and decisions provide the parameters within which negotiations will take place. As such, the negotiations are said to take place “in the shadow of the law.”9
From the standpoint of governments and of international financial institutions (IFIs), such as the IMF or the World Bank, out-of-court negotiations (and more generally, rehabilitation—as opposed to liquidation—procedures) are particularly important in the context of a financial crisis. This is because such negotiations ensure that private sector creditors contribute to the resolution of financial crises by bearing part of the costs of the risks that they incur. Such involvement of the private sector in crisis resolution is important because it reduces the public cost of resolving crises, relieves external financing needs faced by the country, and strengthens the stability of the international financial system by limiting the size of official “bailouts.”10
Turning back to Indonesia, the 1998 Bankruptcy Law amendments encompassed the rationale for out-of-court negotiations described above. The law achieved this in two main ways. First, as a general matter, it provided the right incentives for creditors and debtors to restructure debt by providing for an effective credit enforcement mechanism, underpinned by a strengthened institutional infrastructure (including the new Commercial Court) and a revamped procedural framework (in particular, to speed up the resolution of cases). Second, and more specifically, the law promoted out-of-court negotiations by supporting the rehabilitation of debtor companies through addressing inter-creditor issues:
The law introduced restrictions on the ability of secured creditors to foreclose on collateral during bankruptcy proceedings—once an insolvency petition is filed, there is a 90-day period during which collateral may not be foreclosed. The aim is to give negotiations a chance. The period can be extended under certain circumstances.
The law provided for interim priority financing to enable businesses to continue operating even after an insolvency petition is filed.
The law allowed for the ability to bind in dissenting unsecured creditors following approval by the Commercial Court of a debtor’s restructuring plan agreed to by the requisite majority of creditors (this is because it is difficult to obtain unanimity of creditors on a restructuring plan).11
The 1998 Bankruptcy Law provided clear and transparent rules, designed to facilitate out-of-court negotiations by enabling debtors and creditors to assess their respective leverage and to make commercially reasonable decisions. However, as discussed further below, effective corporate debt restructuring was hampered by the ineffective implementation of the rules, as reflected in some of the poor practices that developed within the insolvency system and by a number of controversial court decisions that seemed difficult to square with the rules.
Design and Establishment of the JITF
With advice from the IMF and the World Bank, the JITF was modeled on workout techniques followed in other countries.12 In particular, the JITF built upon the so-called “London Approach,” which consists of a set of nonbinding guidelines developed by the Bank of England.13 This approach was chosen because it allowed for a framework in which the government could facilitate negotiations, but in which public funds would not be provided to distressed firms.14 Moreover, the London Approach represented generally accepted debt restructuring principles on which there was already a commercial consensus and with which external creditors were familiar.15 Broadly, the London Approach consists of the following features:
Creditors are urged to take a supportive attitude toward debtors in financial difficulties;
Decisions about debtors’ long-term future are made only on the basis of comprehensive information, which is shared among creditors;
Sufficient information is made available to creditors so that creditors can effectively evaluate the restructuring proposals of debtor companies; and
Interim financing is facilitated.16
In the United Kingdom and other jurisdictions, the approaches used are rather informal and there are no elaborate institutional infrastructures in place. This is possible because, among other things, these jurisdictions have a tradition of, and a set of agreed practices for, resolving issues out of court. In addition, they also possess the necessary negotiating and other technical expertise in good supply. In the case of Indonesia, the absence of these factors required a design that would include an institutionalized infrastructure to effect the approach. This infrastructure had three main elements that went beyond the typical London Approach.
First, a key distinction from the London Approach was that a governmental entity, the JITF, was actively involved in facilitating deal making.17 As a governmental agency, the JITF was subject to the supervision of an inter-ministerial committee known as the Financial Sector Policy Committee (FSPC).18 In addition, its managerial and support staff were employed by the government, and restructuring and mediation experts, who were lacking in Indonesia, were also hired from abroad by the government. Much of the required funding for these experts and for other financing needs of the JITF were provided through a World Bank loan.19 Second, the JITF was designed as a “one-stop” forum for the facilitation of regulatory applications required for restructuring plans (previously procedures were decentralized and time-consuming).20 In particular, in this role, it was charged with recommending incentives for restructuring and removal of disincentives regarding, for example, taxation, legal lending limits, disclosure of financial information, and divestiture by banks of equity acquired in restructuring transactions.21 Third, the FSPC, which, like the JITF, was a governmental body, was empowered to direct certain cases deemed of strategic importance to be restructured under the JITF.22 In addition, the FSPC was charged with overseeing the JITF and IBRA to ensure effective cooperation between the two.23
JITF Restructuring Principles
The JITF established a set of restructuring principles and mediation procedures, which, among other things, called on parties to proceed according to the following rules:
Refrain from effecting liquidation of viable companies while restructuring discussions were proceeding;
Share information on a transparent basis;
Form creditors’ committees as necessary; and
Respect the time-bound mediation procedures and requirements on the conduct of parties.24
In addition, the JITF was authorized to recommend sanctions for “bad-faith” behavior to the FSPC. For example, parties that were found not to respect deadlines, not to show up for mediation meetings, or not to provide required information could be found to be in bad faith and recommended for sanctions. In this regard, names of bad-faith parties could be published, licenses and concessions could be revoked or not renewed, a company could be delisted from the stock exchange, and public interest bankruptcy petitions against uncooperative debtors could be recommended.25 The JITF did recommend about 40 cases to the FSPC.26 However, the FSPC was perceived as doing little to pursue the recommended cases.
Challenges Faced by the JITF
Following its establishment, the JITF was confronted with significant operational challenges. The initial design of the JITF, building on the London Approach, focused on an informal framework that was devoid of a system of sanctions. A basic assumption of the design was that there would be adequate political support and coordination within government for achieving the JITF’s mandate, sufficient budgetary and infrastructural support, and an effective system for the adjudication of insolvency cases and their enforcement. However, as it turned out, corporate restructuring, both within and outside the JITF framework, had to confront a number of difficult obstacles in these areas, as well as in connection with the macroeconomic environment.27
Political and Institutional Challenges
A key obstacle to making the JITF operational was the political context in which it was established. As a general matter, the legal, judicial, and governance reforms that were agreed to under successive IMF-supported economic programs were never able to obtain the benefit of adequate, sustained, high-level, political support for decisive and fundamental change in these areas; vested interests resistant to change were able to exert their influence. More specifically with regard to corporate debt restructuring, there was widespread political resistance to the potential acquisition by external creditors of large ownership positions in domestic companies that restructuring deals under the JITF, or other forums, might entail.28 Further, a class of large debtors known to wield political influence seemed able to exercise that influence and remained impervious to the incentives and sanctions offered under the JITF framework.29
At an institutional level, the lack of political will had a number of consequences. The lack of strong political backing for the JITF led to long delays in getting it operational, thereby impeding its overall effectiveness. Thus, although launched in November 1998, it was not until a year later that the JITF began to obtain sufficient political backing, funding, staffing, and infrastructure. By that time, some of the initial momentum and goodwill toward it had dissipated and doubts about its effectiveness were raised.30 Another manifestation of the absence of political will was the poor nature of coordination and cooperation on debt restructuring, both within the government generally and, more particularly, between the JITF and IBRA. The lack of such coordination resulted in the inadequate integration of the JITF into the political and governmental levers of power and detracted from its effectiveness and credibility.31 Moreover, important potential synergies between the JITF and IBRA could not be realized under the circumstances.32 In addition, poor interagency coordination within the government made it difficult to make the JITF an effective “one-stop” forum for regulatory facilitation, and as of early 2000 the government was still trying to get the agreement of the relevant agencies.33
Shortcomings of the Legal System
In addition to the political and institutional hurdles, the legal system failed to pose a credible threat to debtors that refused to restructure in good faith. As discussed above, out-of-court restructurings were designed to take place “in the shadow of the law.” In this regard, while the provisions of the Bankruptcy Law were clear and transparent, the application of the law by the courts proved to be unpredictable, and thus failed to provide sufficient and consistent incentives for debt restructuring. In particular, legal analysts have concluded that a number of controversial rulings by the Commercial Court in favor of debtors could not be supported by provisions of the law, and they suspect that inappropriate external influences played an important role. These rulings served to shape a recalcitrant attitude among some debtors toward negotiations within the JITF framework. This was particularly true for certain large, politically well-connected debtors referred to above.34 Many cases involving these debtors eventually had to be de-registered from the JITF caseload.35 More generally, the delays and governance problems in the legal system as a whole made it difficult for creditors to enforce their claims, including foreclosing on collateral. This situation provided little incentive for debtors to engage in restructuring negotiations.36
Economic Factors
On the economic front, many debtors were uncooperative about disclosing information on cash and other assets, without which, for example, interim financing could not be provided. Further, weak macroeconomic conditions encouraged some debtors to delay restructuring in the hope that the rupiah would appreciate, thus reducing their foreign currency debt. In addition, the sustainability of many of the deals reached were questioned since only about half the dollar amount restructured involved robust measures like debt-equity swaps, buy-backs, write-offs, and cash payments. Also, the steep depreciation of the rupiah in 2000 had significant impact on the ability of companies to service even recently restructured debt.37 As a result, some creditors came to believe that the JITF process simply served to allow uncooperative debtors to buy time on real restructuring.38
Response to Challenges
Various attempts were made, with varying success, to respond to the challenges discussed above. In particular, in early 2000, the government committed to “giving new political leadership and direction to the corporate restructuring strategy.”39 Coordination and cooperation between IBRA and the JITF was recognized as a key element of the reinvigorated strategy.40 With IMF and World Bank assistance, the design of the JITF was revamped and its procedures were strengthened.41 The government also committed to providing the resources necessary for the JITF to fulfill its mandate in a timely man-ner.42 Many of these measures were in place by May 2000, following which performance under the JITF showed marked improvement.43
Achievements and Impact of the JITF
In its five years (1998–2003), the JITF played the role of mediator in well over 100 cases, involving more than 300 companies and close to US$30 billion of debt. With respect to at least US$20.5 billion of that debt (about 70 percent of the dollar amount of total debt registered under the JITF), the parties were able to reach final legal closure or conclude memoranda of understanding as a prelude to final legal closure. This restructured debt comprised about a third of the total corporate debt in distress in Indonesia as a result of the crisis. On the remaining US$9 billion of debt (30 percent of the dollar amount of total JITF-registered debt), no agreement could be reached and the cases were removed from the register. In addition, the JITF estimates that its efforts made it possible for companies employing a total of over 300,000 people to restructure their debt and to return to profitability.44
On balance, Indonesia achieved considerable success in corporate debt restructuring. The legal and institutional framework for out-of-court corporate debt and bank restructuring was successfully put into place. In particular, the JITF contributed substantially to debt resolution and to economic recovery. In the absence of a credible legal system and within a difficult political environment, the JITF provided a predictable, neutral, transparent framework for restructuring. In the end, however, the absence of a credible legal threat led many creditors and debtors to focus on the difficult ultimate issues of control and debt forgiveness rather than on intermediate issues such as interim financing that could have better promoted corporate rehabilitation.45 The lack of confidence that creditor rights would be protected led some debtors and creditors either to shun negotiations or to adopt extreme negotiating postures.46
In terms of its broader legacy, the JITF process led to a wider recognition in Indonesia of the usefulness of alternative dispute resolution. The JITF also contributed to the development of debt restructuring expertise in Indonesia. Many former JITF staff are involved in a new mediation center announced in September 2003, which is intended to provide general mediation and training. The center, the Indonesian National Mediation Center, is expected to cooperate with the judiciary, which has adopted regulations requiring commercial disputes to be mediated prior to litigation.47 In addition, the JITF process also played an important role in improving the secondary debt market as some of the restructuring deals involved debt buy-back schemes.48
Lessons for Law Reform in General
The experience of the JITF highlights a number of key ingredients that are necessary for effective and sustainable law reform in developing countries, particularly where vested economic rights are at stake and when an economy is in the throes of a financial crisis. In the case of the JITF, three such factors were particularly instrumental—political will and institutional arrangements, technical capacity, and donor support and coordination. While the importance of these particular factors for law reform are self-evident and well-known, and therefore perhaps uncontroversial, they are so critical that they bear being repeated.
Political Will and Institutional Arrangements
As discussed above, the lack of adequate, sustained high-level political will to support the JITF undermined its credibility and effectiveness through a number of means, including the long delays in becoming operational, the poor coordination within government, the recalcitrance shown by politically well-connected debtors as a result of the failures of the legal system, the lack of robust enforcement of the system of sanctions under the JITF framework, and the lack of confidence in the JITF instilled in many creditors.
When the government announced its commitment in early 2000 to reinvigorate the JITF and, more generally, its corporate debt restructuring strategy, and then began to implement that commitment, a marked improvement in performance under the JITF was soon registered. Had that political support been there continuously from the outset, the JITF would likely have achieved even more than it managed to achieve. This experience teaches the following lessons for the design of law reform programs involving institutional changes:
The nature and level of political will must be taken into account.
Institutions should not be seen in isolation; the necessary coordination mechanisms within government (or with outside entities as appropriate) must be addressed at the design stage.49 In this regard, clear lines of political accountability for the program should be established.50
Program design should include sufficient flexibility to accommodate necessary program adjustments as experience grows with implementation and as the political context and practical realities change.
Adequate institutional resources, including funding, staffing, and infrastructure, need to be made available up front.
Technical Capacity
From the outset, the JITF program design recognized that Indonesia lacked the necessary expertise in debt restructuring and mediation. The IMF and the World Bank worked with the government to identify the requisite foreign expertise, willing to stay in Indonesia for the long haul and committed to engaging in a real transfer of skills to Indonesians. In addition, program design paid attention to introducing sound restructuring principles and mediation procedures and adapting them to local circumstances. When the procedures did not work as intended, more robust procedures were introduced. These successes point to the following general lessons for law reform programs:
Programs should avoid prescribing remedies without ensuring that the requisite technical capacity exists, either from local or foreign sources.
Where foreign expertise is used, every attempt should be made to locate experts who are willing to stay for as long as necessary and to engage in a real transfer of skills to local professionals, thus leading to long-term sustainability of program goals.51
Donor Support and Coordination
The IMF and the World Bank were the key donors associated with the JITF. The agencies worked closely in assisting Indonesia in designing the JITF, but also in monitoring its progress and suggesting needed adjustments in design and implementation. This involvement with the JITF continued throughout the life of the JITF. Further, much of the funding for the JITF was provided through a World Bank loan. The key lessons are as follows:
Complex law reform programs, such as the establishment of a new institution to deal with issues that have not previously been dealt with in a particular country, often require strong external donor support, both technically and financially.
In providing such support, donors need to work together in order to minimize institutional rivalry that can lead to wasteful competition and duplication. Even more important, care must be taken to ensure that donor priorities do not distort the real needs of the recipient country. To this end, program design should seek, to the extent feasible, to engage local stakeholders and constituencies for reform by directly involving them in the program activities at the design, implementation, monitoring, and evaluation stages.52
Donors should be prepared to be involved for the long haul, rather than simply helping in design and then fading from the scene. Continuous technical support and monitoring and timely provision of adequate financing need to be key aspects of program design.
Notes
See generally, IMF, Indonesia’—Selected Issues, Chapter IV, “Legal, Judicial, and Governance Reforms,” April 16, 2004, IMF Staff Country Report No. 04/189 [hereinafter IMF Staff Country Report No. 04/189], http://www.imf.org/external/pubs/ft/scr/2004/cro4189.pdf.
See, e.g., Government of Indonesia, Second Supplementary Memorandum of Economic and Financial Policies, June 24, 1998, at paras. 12–13, http://www.imf.org/external/np/loi/062498.htm. See also Government of Indonesia, JITF Final Report (December 2003) [hereinafter JITF Final Report], at 14–16.
JITF Final Report, at 3, 65–66.
World Bank, World Bank Brief on Corporate Restructuring in Indonesia, March 1999, IMF Document No. EBD/99/46 [hereinafter World Bank Brief], unpublished, at 1–3, and Annex 1. In subsequent years, the proportion of foreign currency denominated corporate debt continued to be significant. See JITF Final Report, at 59–64.
World Bank Brief, at 1; JITF Final Report, at 12.
The unresolved corporate debt was a substantial drag on the economy. For example, the recovery of the domestic financial sector was stymied as there were fewer viable and performing companies to which banks could extend credit. Conversely, the debt overhang limited the ability of otherwise viable firms to access new financing, thus impacting negatively on their growth and their ability to sustain and create employment. See IMF, Indonesia—Selected Issues, Chapter III, “Corporate Debt Restructuring and Related Legal Reforms,” August 16, 2000, IMF Staff Country Report No. 00/132 [hereinafter IMF Country Staff Report No. 00/132], at 48, http://www.imf.org/external/pubs/ft/scr/2004/cr04189.pdf.
JITF Final Report, at 11–12; IMF Staff Country Report No. 04/189, at 42.
Government of Indonesia, “Memorandum of Economic and Financial Policies,” attached to the Letter of Intent to the IMF of July 29, 1998 [hereinafter “Memorandum of Economic and Financial Policies” (July 29, 1998)], at para. 14, http://www.imf.org/external/np/loi/072998.htm.
IMF Staff Country Report No. 00/132, at 50. See also IMF Legal Department, Orderly and Effective Insolvency Procedures—Key Issues (Washington: IMF, 1999) [hereinafter Orderly and Effective Insolvency Procedures], at 15–16.
Orderly and Effective Insolvency Procedures, at 53.
See 1998 Bankruptcy Law, Law No. 4 of 1998.
“Memorandum of Economic and Financial Policies” (July 29, 1998), at para. 16. These techniques, primarily used in the United States and Europe, are designed to rescue companies while also maximizing recovery for creditors.
JITF Final Report, at 20.
IMF Staff Country Report No. 00/132, at 49.
Id. at 48.
Orderly and Effective Insolvency Procedures, at 15–16.
However, the JITF had no authority to dictate the terms of a deal. “Memorandum of Economic and Financial Policies” (July 29, 1998), at para. 14.
Government of Indonesia, “Memorandum of Economic and Financial Policies,” attached to the Letter of Intent to the IMF of January 20, 2000 [hereinafter “Memorandum of Economic and Financial Policies” (January 20, 2000)], at para. 55, http://www.imf.org/external/np/loi/2000/idn/01/index.htm.
Government of Indonesia, “Supplementary Memorandum of Economic and Financial Policies,” attached to the Letter of Intent to the IMF of November 13, 1998, at para. 23, http://www.imf.org/external/np/loi/1113a98.htm; Government of Indonesia, “Supplementary Memorandum of Economic and Financial Policies,” attached to the Letter of Intent to the IMF of March 16, 1999, at para. 38, http://www.imf.org/external/np/loi/1999/031699.htm.
Throughout the life of the JITF, the IMF and World Bank worked closely to advise Indonesia on designing the JITF, to monitor the JITF’s progress, and to suggest adjustments in its design and implementation. IMF and World Bank staff met jointly on a frequent basis with the authorities to discuss these issues, and technical assistance provided by both organizations was closely coordinated. Further, the IMF and the World Bank also worked in tandem to monitor the progress of the JITF on a continuous basis, including through the quarterly program reviews under the successive IMF-supported economic programs.
Government of Indonesia, “Supplementary Memorandum of Economic and Financial Policies,” attached to the Letter of Intent to the IMF of September 11, 1998 [hereinafter “Supplementary Memorandum of Economic and Financial Policies” (September 11, 1998)], at para. 8, http://www.imf.org/external/np/loi/091198.htm.
IMF Staff Country Report No. 04/189, at 42; JITF Final Report, at 30–31; “Supplementary Memorandum of Economic and Financial Policies” (September 11, 1998), at para. 8.
JITF Final Report, at 2–3 of Annex 3. See also “Memorandum of Economic and Financial Policies” (January 20, 2000), at para. 58.
“Memorandum of Economic and Financial Policies” (January 20, 2000), at para. 59; JITF Final Report, at 28, 31–32. As a general matter, given the obvious linkages between corporate debt restructuring and bank restructuring, the legal and regulatory framework had to be designed to promote coordination and cooperation between the two agencies. See supra note 6. More specifically, there was potential for synergies between the two. For example, on the one hand, in JITF deals in which it was involved, IBRA, as a major creditor, could play a catalytic role in bringing together debtors and creditors to act in a commercially reasonable manner. JITF Final Report, at 26–27; IMF Staff Country Report No. 00/132, at 48. On the other hand, the success of the JITF out-of-court process, could be expected to reduce the risk of the out-of-court framework for creditors generally and develop the secondary debt market, thereby increasing the secondary market value of IBRA’s own loan portfolio. IMF Staff Country Report No. 00/132, at 48; “Memorandum of Economic and Financial Policies” (January 20, 2000), at para. 59.
JITF Final Report, at Annex 3.
JITF Final Report, at 29–31, and at 6–7 of Annex 3; Government of Indonesia, “Memorandum of Economic and Financial Policies,” attached to the Letter of Intent to the IMF of May 17, 2000, para. 34, http://www.imf.org/external/np/loi/2000/idn/02/index.htm. The Bankruptcy Law authorizes the Attorney-General to institute bankruptcy petitions when such a petition is deemed to be in the public interest. In addition to recommendations to the Attorney-General regarding uncooperative behavior, the JITF could also recommend that the FSPC refer cases to the Attorney-General for criminal investigation when there was evidence of fraud. Government of Indonesia, “Memorandum of Economic and Financial Policies,” attached to the Letter of Intent to the IMF of July 31, 2000, at para. 41, http://www.imf.org/external/np/loi/2000/idn/03/index.htm.
JITF Final Report, at 30.
JITF Final Report, at 18–19, 23; IMF Staff Country Report No. 04/189, at 42.
IMF Staff Country Report No. 00/132, at 54. See also JITF Final Report, at 25–26.
JITF Final Report, at 9–11. See also IMF Staff Country Report No. 00/132, at 54.
JITF Final Report, at 23, 25–26, 32.
Id. at 25–26.
See supra note 23. For example, for a number of years, IBRA was unable to add momentum to debt restructuring, within or outside the JITF, as government policy prohibited IBRA from agreeing to reductions in book value of debt. Even with such authority, IBRA was reluctant to act before being assured of some measure of legal protection for its officers who could be held personally liable for engaging in such debt reduction transactions. IMF Staff Country Report No.00/132, at 54, 55. Further, IBRA was perceived as keener to pursue the narrower objective of its own debt collection than on achieving the government’s broader corporate restructuring goals. JITF Final Report, at 27.
IMF Staff Country Report No. 04/189, at 42; “Memorandum of Economic and Financial Policies” (January 20, 2000), at para. 61.
IMF Staff Country Report No. 00/132, at 53; JITF Final Report, at 16, 23–24.
JITF Final Report, at 35–36.
IMF Staff Country Report No. 00/132, at 53; JITF Final Report, at 23–24.
IMF Staff Country Report No. 00/132, at 54, 60–61.
IMF Staff Country Report No. 04/189, at 43.
“Memorandum of Economic and Financial Policies” (January 20, 2000), at para. 8.
Id. at paras. 55–59.
Id. at paras. 55, 58; JITF Final Report, at 28–32; IMF Staff Country Report No. 04/189, at 43.
“Memorandum of Economic and Financial Policies” January 20, 2000), at para. 60.
“Memorandum of Economic and Financial Policies” (May 17, 2000), at para. 32–34; JITF Final Report, at 33–35; IMF Staff Country Report No. 04/189, at 43.
JITF Final Report, at 3, 22, 51–52, 65–66.
Id. at 3, 20–21, 23–25; IMF Staff Country Report No. 04/189, at 43.
JITF Final Report, at 23–24; IMF Staff Country Report No. 00/132, at 50, 53.
JITF Final Report, at 5–6, 46–47; IMF Staff Country Report No. 04/189, at 43.
JITF Final Report, at 37, 51–52; IMF Staff Country Report No. 04/189, at 43.
E.g., coordination between JITF and IBRA, or relationship between JITF and the implementation of the bankruptcy framework by the courts.
It was not until the FSPC, an inter-ministerial committee, was entrusted with supervision of the JITF, policy coordination of corporate restructuring generally, and, more particularly, coordination between the JITF and IBRA, that real political accountability for the law reform program was introduced and positive results began to be achieved.
The Indonesian National Mediation Center is a testament to the JITF’s development of a reservoir of skilled local restructuring and mediation experts who continue to serve Indonesia long after the foreign experts have left.
A by-product of involving local stakeholders and reform constituencies may be that such groups can serve to provide the public pressure necessary to generate and maintain adequate, high-level political will for reform.