Indonesia is among the world's worst and hardest places in collecting the unpaid debts, due to the lenient payment terms, along with lengthy and costly legal action, a research conducted by a global credit insurance group Euler Hermes showed. (Antara Photo/Ahmad Subaidi)

Indonesia Among Worst Countries for Debt Collection: Report


FEBRUARY 13, 2018

Jakarta. Indonesia is among the worst and hardest places in the world to collect debt payment due to lenient payment terms and the potentials of lengthy and costly legal actions, a research conducted by global credit insurance group Euler Hermes showed.

The report, titled "2018 Collection Complexity Score and Rating," was published on Monday (12/02) and measured the complexity level of international debt collection procedures in 50 countries.

Indonesia scored 67 in the survey and was ranked seventh in a list of countries where collecting unpaid debts faces almost insurmountable challenges.

The list was categorized as "severe" and led by Saudi Arabia, followed by the United Arab Emirates (UAE), Malaysia, China, Russia, Mexico and Indonesia.

Paris-based Euler ranks the countries according to three factors: payment practices, court proceedings and insolvency system.

The report measures countries by scores — the higher the score, the more complex the country's experience is in resolving debts.

Indonesian companies have been relying on external debts for cheaper financing, particularly in large-scale projects which local banks are often unable to provide loans for.

Local companies have amassed $170.6 billion in external debts by the end of November 2017, up 4.2 percent from a year earlier.

Most of the new debts are incurred in the country's financial, manufacturing and gas and water supply sectors, Bank Indonesia data showed.

The country's investment grade debt rating has attracted foreign financiers to provide loans for Indonesian companies.

But Euler warned things can go a little pear-shaped if those debts turn sour.

According to their research, Indonesian companies usually make their debt payment within 30 days of the due date on average, but in recent years they have been delaying payments by up to 20 days.

Any legal action launched against debtors in Indonesia is expected to be complicated, lengthy and costly, not to mention the often inconsistent rulings by the court.

The court's appeal process also gives debtors another chance to delay proceedings.

Euler did note though that Indonesia has slightly improved its insolvency framework, with the 2004 law on insolvency and suspension of payment helping to reduce inconsistent court rulings. The law had replaced the earlier 1998 insolvency law.

Meanwhile, European countries are leading the pack as the most friendly countries for companies trying to recover their dues. Sweden tops the list, followed by Germany, Ireland, Finland, Netherlands, Austria and Switzerland.

"[Even when countries have] the largest economies, the most dynamic markets and are the least vulnerable [financially], it does not necessarily follow that the business environment will be good. Complex regulations exist everywhere, even in Sweden," the report said.

Euler Hermes is part of German insurance group Allianz, a global trade credit insurance firm with specialties in bond insurance, guarantees and collection.