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Debt forgiveness fuels ‘crony bailout’ claims

Desperate times demand desperate measures. But the decision by politically embattled Indonesian president Abdurrahman Wahid to shore up support by allowing indebted conglomerates to get off the hook could easily backfire.

At issue is a planned "restructuring" of $3.7 billion of debts owed to the Indonesian Bank Restructuring Agency (IBRA), a government body established to clean up the mess left in the wake of the 1997 Asian Financial crisis.

The debts are owed by four top local business groups, including textile maker Texmaco and chemical group Tirtamas and were incurred following the collapse of the rupiah in early 1998. Included among them is a portion of the Rp138 trillion (about $34 billion at the time) that was supplied to ailing banks as liquidity credits during a bank run and was subsequently found to have been improperly used.

IBRA has been battling to retrieve the funds since 1998, when it signed agreements with a number of the companies under which they pledged assets to repay the money owed. Now, not only have many of the assets been run down in value but auditors have found they were seriously overvalued in the first place.

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