Derwin Pereira, Jakarta – Indonesia's government is getting ready to crack the whip on recalcitrant debtors by giving the Attorney-General's Office powers to sue companies that fail to pay their debts – a development that can have significant implications for the country's economic growth.

Sources here said that a presidential decree would be passed soon to add weight to efforts to restructure Indonesia's massive corporate debt, which is estimated at US$40 billion (S$68 billion).

"Jakarta has for the last year adopted a 'carrot approach' to recovering money owed by bankrupt companies," said a Washington- based source. "That has had very little impact on resolving the problem. The government now wants to use a legal framework to sue companies that owe money. The thinking now is that in order to sustain economic recovery, many firms need to restructure their debts."

The Indonesian Bank Restructuring Agency (Ibra) last year published a list of 200 of the biggest debtors. But little has been done in practice to take them to task.

The "carrot approach" meant the government used bodies like Ibra and the Jakarta Initiative Task Force to bring firms together, on a voluntary basis, to restructure corporate debt. But firms were insulated from further foreign-exchange risk as they could pay their debt obligations in the local rupiah currency.

The source said that many collapsed businesses were not inclined to pay at the time, given the rupiah's massive devaluation at the height of the economic and political crisis in 1998.

But the situation was different now, given that the economy was picking up, albeit slowly, and there was a sense among the political elite that Jakarta could not rely on foreign help forever.

Ibra, which will work in concert with the A-G's Office, will be instrumental in identifying debtors and providing information to the A-G to bring them to court. An Ibra official said the presidential decree would help elevate and give stronger bite to the agency's role. It could also have a positive impact on the market given some concerns over the slow response so far to economic problems and getting tough on debtors.

Attorney-General Marzuki Darusman told The Straits Times the decree would improve coordination between the different government agencies. "It will provide a legal and administrative framework to expedite cases against firms and meet the government's concern of recovering as much money as possible," he said.