Jakarta – Indonesia has raised more than US$2.5 billion from the sale of bad loans that it took over following the 1997-98 Asian financial crisis.

The loan sales move Indonesia's Bank Restructuring Agency a step closer to meeting its target this year of raising 42 trillion rupiah from asset and loan sales. Indonesia's Budget, already running a deficit equivalent to 2.5 per cent of its gross domestic product this year, is counting on this money.

Mr Syafruddin Temenggung, head of the Bank Restructuring Agency, said that 70 per cent of the buyers were local banks, asset management firms and securities companies. The remaining investors were foreign, although none were from internationally known investment firms, he said.

He said the loans were sold at about one third of their original value. Analysts suspect that many of the buyers are acting on behalf of the original debtors themselves.

The agency has come under fire for potential irregularities in the sale, including the sale of one loan to a consortium that included a relative of the agency's deputy chairman.

State Minister of National Development Planning Kwick Kian Gie has called repeatedly on the government to investigate the loan sale, and Parliament members have said that they plan to hold a hearing on the matter next month.

Indonesia set up the agency in 1998 to manage the assets and loans that the government took over following the collapse of the country's banking system.

The agency took over US$33 billion in bad loans, becoming the largest single creditor in the country.

Along with the loan sales, the agency has also been charged with selling off state-owned assets, including the sale of majority stakes in some state-owned banks.