According to the article: How effectively has the new Bankruptcy Law been implemented?

and its economic and legal institutions. Nevertheless. the formal language used in the reform was to respond to societal needs, in view of the national interest and the continued effort to amend obsolete Dutch colonial laws."" Actually, societal needs had never been the driving force behind the reform of the Bankruptcy Act. Consequently, the reform did not received a wide public sup- port. " For many Indonesians, including the Indonesian business community, the reform was not absolutely necessary. It had never been considered as part of the solution to manage the economic crisis. To the contrary, the Bankruptcy Act reform had been perceived as a means for foreign creditors to conveniently take over Indo- nesian businesses." One argument, although it is not the only argument, to support this contention is that the economic crisis had illustrated the inability of companies to pay their for- eigncurrency loans. Prior to the economic crisis, as the exchange rates were rela- tively stable, there were only a few cases of inability to repay a debt. However, when the crisis hit Indonesia, exchange rates depreciated considerably without the government being able to control them." Therefore, the foreign currency loans of local (rupiah) currency income of companies had to be paid at least at a triple rate. and in some instances even at a higher rate than that in local currency terms. This was the case irrespective of the fact that a company's performance was maintained to provide a stable income. Hence, the economic crisis resulted in the inability, but not necessarily unwillingness, of many Indonesian companies to pay their foreign currency loans. D. The Effects To secure the enactment policies at the implementation stage, the IMF had as- sisted the government in various ways. Furthermore, the IMF had monitored fol- low-up actions on the reform every time a loan was about to be disbursed. The IMF even cautioned Indonesia, time and again, that unworkable Bankruptcy Act and commercial court might undermine Indonesia's effort to recover from the economic crisis.jectives of the IMF-influenced enactment policy were not achieved at the imple- mentation stage for several reasons. To begin with, since some provisions of the law are too ambiguous, they have created uncertainty and unpredictability. For instance, there have been a number of different rulings on what constitutes a debt. Some rulings defined a debt only in terms of monetary indebtedness. However, other rulings considered that a debt was not restricted to monetary indebtedness. Under this definition, a debt may include a party's obligation to deliver services or goods." Second, many court rulings have been inconsistent with the IMF-influenced en- actment policy of giving protection to creditors, especially foreign creditors. Major rulings have been controversial and almost all were unfavorable to creditors. For- cignacreditors and the Indonesian Bank Restructuring Agency (IBRA) have fre- quently voiced their complaints to this effect. For example, the commercial court rejected an application for bankruptcy made by American Express (AMEX) against PT. Ometraco Corp. (Ometraco)." The re- fusal was based on a technicality, rather than on substance. The court argued that AMEX should have filed two bankruptcy petitions against Ometraco and its sub- sidiary, instead of only one. Similar to this case, the commercial court had turned down the application to declare bankrupt PT. Tri Polyta Indonesia Tbk., by one of its bondholders, OCM Opportunities Fund II, due to an incorrect power of attor- ney. 35 In another case, PT. Sumi Asih, IBRA had requested the commercial court to declare bankruptcy. The court rejected the request on the ground that the request should have been made by the banks undergoing restructuring by IBRA, and not by IBRA itself. In a different case, a request to declare bankruptcy was rejected be- cause the creditor, at the same time, filed a law suit against the company which was requested to be declared bankrupt. The request was made by Drayton Kiln, Ltd., a British company, against PT. Dekomas Mulia Industries. The commercial court stated that it had no jurisdiction since a civil law suit was initiated and came under the jurisdiction of the general court. In one case, the court did not recognize a debt as due and payable, regardless of the fact that the loan had been accelerated. The reason given was that the finalrepayment date had not occurred. Other examples include the decision of not rec- ognizing a debt under a swap transaction as a valid debt. The causes of these controversial rulings have not been determined. One argu- ment is that judges handling bankruptcy cases may have nationalist feelings and consider that they have the duty to protect Indonesian companies from being taken over by foreign creditors. The third inconsistency between the enactment policy and its implementation is the fact that parties who actually had contractual, tort, or other non-bankruptcy disputes with the relevant companies often used the Bankruptcy Act. An applica- tion for bankruptcy was filed by stating that the party in dispute had incurred a debt toward the applicant. The applicant then provided to the court evidence that there were other debts. By doing this, the applicant had satisfied the requirement for declaring the party in dispute bankrupt. The court then would examine these two requirements and. if it found that they were satisfied, the court would declare the bankruptcy. In such a process, the court may not determine whether the would-be- declared bankrupt party was solvent or insolvent. This is because the Bankruptcy Act does not require a party to be insolvent before a bankruptcy is declared. PT. Modernland Realty (Modernland) was the first victim (solvent-yet-bankrupt) due to its failure to deliver some apartment units to its customers. " An insurance joint venture company, PT. Asuransi Jiwa Manulife Indonesia (AJMI). had to de- fend itself against several petitions of bankruptcy brought by some unsatisfied poli- cyholders who demanded payment of disputed insurance claims."Most recently. another joint venture company, PT. Unilever Indonesia Tbk., had to defend itself against a petition by its former forwarding company. PT. Parma Djaja whose con- tract was terminated earlier." One may be surprised that an application for bank- ruptcy could even be filed against a solvent company with huge volumes of assets. and that sometimes such companies were indeed declared bankrupt after the appli- cant simply proved that it had receivables, an amount of money due to him, techni- cally, even as low as IDR 1. In addition, some disputes between shareholders have ended up in the commer- cial courts. The controversial case of AJMI, which was the object of an applicationTABLE I THE CASES REGISTERED AT THE JAKARTA COMMERCIAL COURT Year Number of Cases 1998 1999 100 2000 84 2001 67 2002 38 2003 (May) 12 Source: Hukumonline data. by one of its shareholders. PT. Dharmala Sakti Sejahtera, and was declared bank- rupt in 2002, is a good example." This case will be discussed in detail later. In this sense, the bankruptcy mechanism has become an alternative for dispute resolution, even though the dispute does not involve any bankruptcy issue. Large and bona fide companies usually surrender to the demands of less powerful ones if threatened or petitioned in bankruptcy. It is unfortunate that the Bankruptcy Act has been effective for this purpose. The performance of the commercial court has become another source of disap pointment. One year after its full operation, the Jakarta Commercial Court had re- ceived 100 applications, a record high. Unfortunately, in the following years, the number gradually decreased. Until May 2003, there had been only 12 registered cases for 2003 (see Table I). The conditions of the commercial court outside Jakarta are even worse. As of April 2003, there had not been any applications for a declaration of bankruptcy in any of these courts, except for one case in the Surabaya Commercial Court. Recently, the commercial court infrastructure, particularly in Jakarta, has been improved considerably, although the number of cases has continued to decrease." According to the white paper of the Jakarta Commercial Court, the number of petitions to declare bankruptcy in 1998 accounted for 42% of all the cases submit- ted."In 1999, the percentage decreased to 31%, but recorded a slight increase in the subsequent year, namely 38%. In 2000, it fell to 28% and the year after, therewas a small increase of 23%. In 2003, the percentage of requests for petition for bankruptcy accepted by the commercial court was 32%. The decreasing number of cases is due to the disappointment in many quarters with the performance of the commercial court." Foreign creditors, whose interests have been promoted by the IMF, are now reluctant to pursue their debt settlement through the commercial court. It was reported that, among the 100 cases filed in 1999, not a single significant foreign creditor had been successful. Even IBRA faces the same fate and will only utilize the bankruptcy mechanism as a last resort when dealing with recalcitrant debtors. The IMF, as early as in 2000, had expressed its disappointment over the failure of the commercial court to force recalcitrant debtors to settle their debts. Even people within the government strongly considered that the commercial court had failed miserably in its task. +