Report No. PID7222 Project Name Indonesia-Corporate Restructuring Technical... Assistance Project Region East Asia and Pacific Sector Private Sector Development Project ID IDPE63732 Borrower Government of Indonesia Guarantor Government of Indonesia Implementing Agencies Jakarta Initiative Task Force and Private- Sector Debt Restructuring Team Date Initial PID Prepared September 20, 1998 Appraisal Date December 9, 1998 Board Date February 16, 1999 Background The financial crisis that erupted in Asia in late 1997 had an immediate contagion effect on the Indonesian economy. In turn, the virtual collapse of the Indonesian financial system had a dramatic effect on the corporate sector. The effect has manifested itself in several ways, including a collapse of domestic demand, unavailability of domestic and foreign credit, restrictions on imports and exports through lack of trade finance, a reduction in transport options, unavailability of containers, reefers and internal air transport, and the ballooning out of control of corporate debt denominated in foreign currencies. This situation, when combined with the collapse of the Suharto government and continuing political instability means that clear steps are urgently required to stabilize the economy. The Bank has been supporting the stabilization and structural reform measures through structural adjustment loans, and a Technical Assistance Loan to support financial sector restructuring measures. Recently, a loan aimed at poverty alleviation was approved. The Corporate Restructuring Technical Assistance Loan is now planned to support specific restructuring measures in the corporate sector. Objectives The project is designed to assist the Indonesian Government in accelerating corporate restructuring so as to resume growth in the private sector, restore the ability of corporations to borrow and service their debts, and improve corporate governance.. The overarching objective is to encourage growth, encourage firms to regain access to financial markets and increase employment. It is expected that corporate sector restructuring will complement banking and financial sector reform. Description of the Project The proposed TA project would support implementation of the Government's Corporate Restructuring Program with the emphasis on implementation of the Jakarta Initiative. The goal of the project is to help the Government facilitate and accelerate corporate restructuring The proposed project will help the Government remove obstacles to the restructuring of corporations, by providing expert skills, mediation services, training and equipment. In addition, the project will support activities related to the strengthening and promotion of the Government's corporate restructuring strategy. The TA project would finance consulting services, training and dissemination activities, and equipment. PProject Components Component I: Facilitation and Advisory Activities to Support Corporate Restructuring This component will support the Jakarta Initiative Task Force (JITF) by financing consultants, including facilitators, accounting firms, lawyers, investment bankers to help facilitate corporate restructuring deals. It will include expert advisory services and will help debtors and creditors to initiate negotiations, exchange information, and to reach agreements. Component II: Streamlining and Strengthening Regulatory, Legal and Administrative Processes for Corporate Restructuring This component will support the implementation of a rapid and simplified Government approval process to finalize restructuring deals. The Regulatory Facilitation Group within the JITF will be able to act as a one-stop shop, facilitating and accelerating regulatory approvals for restructuring deals. Component III: Implementation Support and Capacity Building for JITF The principal objective of this component is to ensure that the Jakarta Initiative Task Force has the necessary equipment, training and support to carry out activities related to the implementation of the Jakarta Initiative. The infrastructure needs of the Jakarta Initiative Task Force include office space and equipment, staff training, secretarial and administrative support, and information management and reporting systems. Component IV: Coordination of the Government's Corporate Restructuring Strategy This component will support the design, refinement and implementation of a framework for the improvement of linkages between the JITF and other relevant agencies/ministries, including Indonesian Bank Restructuing Agency (IBRA), Indonesian Debt Restructuring Agency (INDRA), Bank Indonesia, and the newly created Commercial Courts responsible for the administration of the Bankruptcy Law. It will also support coordination activities, particularly those which are linked to restructuring of the financial sector and banking reform. As part of this coordination function, this component will support marketing of the corporate restructuring process and of the government's integrated approach, including but not limited to preparing and presenting "road shows" to explain the process to creditors and debtors. Component V: Implementation Support and Capacity Building for Corporate Debt Restructuring, Bank Indonesia (BI), and INDRA The principal objective of this component is to ensure that Bank Indonesia (BI) and INDRA, two key actors in the corporate restructuring process, have the necessary equipment, training and support to carry out activities related to the implementation of the Jakarta Initiative. Among the activities to be financed are the upgrading of the statistical capabilities and level of staff training at BI and INDRA's computer systems, as well as provision of necessary - 2- office equipment, and staff training. The component will support additional legal, tax, and policy analysis expected to be necessary as the corporate restructuring progresses. Finally, funds will be made available under this component to support technical studies related to the Jakarta Initiative process. Financing Plan. Institution Foreign Share (%) Local Share (%) Total Share (%) IBRD 21.0 100% 9.0 75% 30.0 90% GOI 0.0 0% 3.1 25% 3.1 10% Total 21.0 100% 12.1 100% 33.1 100% All figures in (US$m) Project Implementation. The implementation period of the loan would cover approximately two years. The executing agencies under the project would be the Office of the Coordinating Minister of Economy, Trade and Industry and the Jakarta Initiative Task Force. Other agencies, including BI, the Ministry of Finance, the Ministry of Justice, and other institutions would be called upon as necessary to provide counterparts to consultants and cooperate in some of the activities of the project. The Jakarta Initiative Task Force will establish a project management unit headed by a Project Manager that would be responsible for the day-to-day management of components I, II and III of the project, engage local and international consultants, and procure equipment. Similarly, the Private Sector Debt Restructuring Team will take responsibility for implementing components IV and V. On the Bank's side, supervision would be carried out by with specialized staff in units at headquarters in conjunction with the Economics Unit under the Country Director based in Jakarta. Coordination of technical assistance provided by the Bank, IMF, the Asian Development Bank, and bilateral donors will be take place through a special coordinating committee convened for that purpose (and the Bank's initiative) in Jakarta. Contact Point: The InfoShop The World Bank 1818 H Street, N.W. Washington, D.C. 20433 Telephone No. (202)458 5454 Fax No. (202) 522 1500 Dr. Dale F. Gray PSDCR The World Bank 1818 H Street NW Washington DC, 20433 Tel.: 202-458-7751 Fax: 202-522-3480 - 3 - Note: This is information on an evolving project. Certain activities and/or components may not be included in the final project. Processed by the InfoShop week ending January 1, 1999. - 4 -