Henny Sender, Washington – There were low expectations on both sides when the Indonesian delegation at last week's International Monetary Fund-World Bank talks held a breakfast meeting to present creditors with Jakarta's latest plan to deal with its corporate sector's huge debts.

"All we wanted was to give a better explanation of the situation and get sympathy and ask everyone to cooperate in restructuring," said Finance Minister Bambang Subianto. "We didn't target new money." It was just as well. If comments at the meeting were anything to go by, the gulf between Indonesian debtors and their creditors remains as wide as ever. This exists despite the Indonesian delegation's brave words about the latest proposal – called the Jakarta Initiative – for dealing with the private-sector part of the country's estimated $140 billion in foreign debt, and recent amendments to the bankruptcy code. (Private-sector debt is about 50% of that total.) 'Quick fixes'

"The changes [in the bankruptcy law] are contradictory and inadequate," said Veronica Taylor, associate director of the Asian law center at the University of Melbourne, who specializes in bankruptcy and is involved in a training program to help Indonesian judges understand the subject. "These are quick fixes being grafted onto an institutional infrastructure that is dysfunctional."

The question marks over the private sector's massive debt and the efforts to deal with it show just how difficult it will be to put corporate Indonesia on the road to recovery.

The Jakarta Initiative merely suggests the procedures for negotiations between debtors and creditors. The government is concerned that if creditors force Indonesian firms into bankruptcy, the chances of an economic recovery become even more remote. "You need to restructure companies, not to liquidate them," said Richard Gitlin, chairman of US-based law firm Hebb & Gitlin and an adviser to the Indonesian government. "And if you liquidate companies, you kill the banks."

Few Indonesian companies have made payments on their foreign debt since the rupiah plunged early this year. That's because the depreciation has caused debt repayments in rupiah terms to balloon. At the same time, debtors and creditors haven't come to any agreements on debt restrucuturing. Mr. Gitlin told the breakfast meeting that several new debt-resolution procedures, such as the ability of creditors to implement out-of-court agreements in 45 days, will speed up resolution of the stalemate in negotiations.

New organization

He also noted that the government is setting up an organization to simplify regulatory approvals of foreign stakes in local companies, debt-for-equity swaps and new share issuance. He added that the government is establishing "facilitators" to address bankers' concerns, and an advisory committee with representatives from the banks. But even Mr. Gitlin had to concede that corporate borrowers and their lenders aren't speaking the same language. "Creditors say, 'We own the debt so we own this company,' " he noted. "The debtors, meanwhile, say 'Why should we agree to swap debt for equity when the rupiah is so low? We're not going to give away our company just because we are insolvent.' " Bankers at the meeting complained that they weren't speaking with their borrowers at all, let alone in a different language. And that was only the beginning of their complaints. "Creditors have no idea what is going on," said an official from Bank Berliner. "The information is insufficient. The whole process is still shrouded in mystery." In fact, creditors seemed far more interested in the bankruptcy procedures than in any alternative to them. "Debtors still have the mindset of, 'You have no power over us so why should we sit down with you?' " said the credit officer for a Japanese merchant bank. "So we at least need the bankruptcy code to get debtors to the table." These are early days to question the workings of the new commercial court that was set up in Indonesia as part of the amendments to the bankruptcy law. But there are concerns there as well. "You have to start from scratch," said Ms. Taylor of the University of Melbourne. "The new judges don't understand how commercial restructuring works in the world of common law. And then, of course, there is the question of enforcement."

'No precedents'

Moreover, she said, in many cases claims over collateral could also prove thorny. "In many cases, creditors never registered the security. They sometimes didn't take it or never considered the possibility that security may disappear. And under Indonesian law, it isn't clear what you can liquidate. There are no precedents. It's all untested." Still, many bankers take a more sympathetic view of the situation. "Indonesia is trying to do everything at once," said Morgan McGrath, regional manager for Southeast Asia with Chase Manhattan Bank in Singapore. "I'd love to see the bankruptcy law built up as a credible threat. But at the same time, if you want the medicine of reform, you have to make sure it doesn't kill the patient. It's a tough balance."