The Indonesian economic crisis that began in 1997 affected the banking sector severely, due largely to the fact that many debtors were unable to repay their loans. In light of the enormous amounts involved in bank insolvencies, the government has deemed it necessary to take steps to prevent further economic damage to the country.
One of its most significant actions was the implementation of comprehensive debt restructuring and asset management procedures, to be conducted under a specially established government institution. This institution, the Indonesian Bank Restructuring Agency (IBRA), was granted judicial authority in order to assist it in fulfilling its duties and thus expedite the restructuring process. The IBRA has since played a crucial role in the efforts to revive the Indonesian economy through exercising its new powers.
The authority invested in the IBRA reflects special aspects of Indonesian procedural law. Government Regulation 17 of 1999 (and further amendments thereto) has conferred special powers on the IBRA to enable it to operate with greater speed and efficiency. These limited rights are as follows:
- The IBRA has the right to investigate and examine in its efforts to acquire information that will further the restructuring of assets and liabilities of banks which directly or indirectly have obligations to the state, including the individual and institutional debtors of such banks (Article 42). The investigation may also be extended to members of the board of directors or board of commissioners, shareholders, bank employees and their debtors. The right to investigate and examine is usually held only by the police and state attorneys.
- In order to secure the assets of banks and their debtors, both within and outside of the country, the IBRA has the right to freeze such assets and is entitled to determine the procedures governing this action (Article 47). The right to freeze assets of claimed parties is usually held by the courts.
- The IBRA is entitled to claim credits issued by the banks against their debtors (Article 54). This is effected by issuing an order to the debtors obliging them to comply with previously arranged and mutually agreed terms of debt settlement. The IBRA is entitled to use the words "In the name of justice and almighty God" in the order, a phrase which legally announces that the order has the equivalent of a court judgment with permanent legal force. This gives the IBRA the power to act without first having to obtain a court judgment on the matter, which would otherwise be the case.
- The IBRA is entitled to confiscate a debtor's assets (Article 58). An IBRA confiscation order is implemented through a special administrative procedure, and must be registered. Should the debtors' obligations be settled in full, the IBRA is entitled to cancel the confiscation order and return the confiscated assets.
The designation of these powers to the IBRA, thus relieving judicial institutions such as the courts, the state attorney and the police, was a solution to the urgent need to find a practical means of preventing the economic collapse of a nation while remaining within the ambit of prevailing Indonesian laws. However, it is crucial that the IBRA's decisions remain correct in order to avoid any potential negative consequences.
The IBRA's new authority as a judicial force should help to reduce the huge number of insolvency claims that have piled up in the aftermath of the economic crisis, as it can now handle cases more swiftly and efficiently than under normal court procedures, thus allowing for stronger legal certainty within a shorter timeframe. However, the IBRA must ensure that all cases handled will offer an accelerated process and are accepted by all relevant parties, and that no further claims emerge. To date there are several cases at the district courts regarding debtors' objections to the confiscation of assets by the IBRA. Whether appropriate or not, all these objections must be heard by the courts and may result in the confiscation being declared illegal.
Moreover, there is a question as to whether the IBRA's judicial authority exceeds the prevailing procedural laws. It is arguable that improving the court system as far as possible so that it could adequately support the IBRA while retaining ultimate judicial authority might be a more legally correct alternative. It is also debatable whether the IBRA has sufficient skilled manpower to fulfil its duties, a question which casts doubt on the wisdom of burdening the IBRA so heavily when these resources are readily available at other judicial institutions. Finally, it is possible that the IBRA will not always be able to implement its judicial authority in an objective and unbiased manner.
In the current conditions, the extension of judicial authority to the IBRA under Government Regulation 17/1999 has proved to be acceptable, particularly in light of its efficiency. However, it remains questionable whether such power should continue to be exercised by the IBRA alone.
For further information on this topic please contact Maku Maramis at Lubis Ganie Surowidjojo by telephone (+62 21 831 5005) or by fax (+62 21 831 5015) or by e-mail ([email protected]).
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