Eyeing foreign capital, Indonesia enacts changes; the bankruptcy law, the capital markets and investment rules are principal areas of reform

Article Abstract:

President B.J. Habibie's impact on Indonesia's political stability has yet to be determined, and the country's focus will be on an extensive reform of its bankruptcy laws and modest reforms in the capital markets and foreign direct investment. The country's five-year plan (4/94-3-99) raises the importance of the private sector in the country's economy. Indonesia has been taking steps to meet the demands posed by private-sector investment in capital markets, including investment security through minimal public and private interference, market liberalization and government correction of systemic market failures.

Foreign investments, Indonesia

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On investing in distressed foreign firms; local insolvency and tax law and practice play key role in U.S. investors' analyses of risks and rewards of troubled companies

Article Abstract:

US investors thinking of investing in distressed foreign firms should first become familiar with the bankruptcy and reorganization laws and practices of the business's home jurisdiction. This should include knowledge of the status of laws governing the debt or securities to be purchased and what legal rights the holder of such securities would have in a corporate reorganization. Potential investors should also learn about the income tax treatment of such investments both in the US and in the foreign jurisdiction. The relevant jurisdiction's corporate law and regulations may also affect the investment's yield.

Foreign corporations

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The principle behind U.S. bankruptcy law, that collective creditor action will further debtor and creditor interests, also can aid sovereign debt restructurings

Article Abstract:

Amendments to the US Foreign Sovereign Immunities Act could make it an appropriate vehicle for rationalizing sovereign debt crises exemplified by the 1980s debt crisis and Mexico's peso devaluation. Several established US bankruptcy principles should be applied to the restructuring of sovereign debt. These are that restructuring should relieve the debtor of its burden and give it time, that new borrowing is often necessary, and that rogue creditors should not be able to flout the rational will of a supermajority of other creditors.

Management, External debts

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