Between IBRA and Danaharta<\/p>\n
This is the first of two articles by Sidhesh Kaul, a Jakarta-
\nbased regional commentator on economic and political issues, on
\nbank restructuring efforts in Indonesia and Malaysia.<\/p>\n
JAKARTA (JP): The Indonesian Bank Restructuring Agency (IBRA)
\nseems to be taking one step forward and two steps backward.
\nProgress is slow and it appears that politicization of the
\ninstitution has transformed its scared denizens into reluctant
\nand indecisive paper-pushers.<\/p>\n
IBRA's preoccupation with transparency and cooperativeness is
\nstymieing progress and distracting it from the onerous task of
\nrecovery.<\/p>\n
A few thousand kilometers away, Danaharta, the Malaysian
\ncounterpart of IBRA, is throbbing with activity and making rapid
\nprogress in a quiet and efficient manner.<\/p>\n
While comparisons tend to be unfair (IBRA's problems in terms
\nof nonperforming loans or NPLs and assets for disposal is far
\nbigger than Danaharta's) a critical overview of the two models is
\nworth while so that some lessons for the future could be derived.<\/p>\n
At the onset of the economic crisis in late 1997, Indonesia
\nwas besieged by a multitude of problems that though initially
\ntriggered by the collapse of the exchange rate led to other
\npredicaments in the economic, social and political arenas.<\/p>\n
The crisis left Indonesia's banking sector paralyzed, which
\nnaturally had a choking effect on the rest of the economy,
\nincluding the real sector.<\/p>\n
The onslaught on Malaysia was less devastating. The initial
\nreaction of the two neighbors in the Association of Southeast
\nNations (ASEAN) to the economic crisis was a contrast in styles.<\/p>\n
While Indonesia reacted by initially blowing up its
\ndiminishing reserves for defending the rupiah aggressively and,
\nwhen that failed, made a beeline for the International Monetary
\nFund's door, Malaysia isolated itself (and the ringgit) and
\nmustered its' resources to deal with the problem internally.<\/p>\n
The one vital difference was the involvement of the IMF in the
\nrecovery process for Indonesia.<\/p>\n
The IMF, right from the inception of the crisis in Indonesia,
\nhas stodgily maintained its position of not interfering in the
\nbusiness of corporate restructuring.<\/p>\n
Instead, the IMF chose to impose harsh policies from its ivory
\ntower and restricted the definition of \"economic recovery\" for
\nIndonesia to tightening of the macroeconomic policies, the
\nrehabilitation of banks and the imposition of guidelines for
\ncorporate restructuring and structural reforms.<\/p>\n
The Indonesian government, under monetary and fiscal
\npressures, has had little choice but to swallow this bitter
\nmedicine in exchange for the much needed funding.<\/p>\n
The \"one-medicine-cures-all\" kind of policies historically
\ndished out by the IMF to debt-ridden countries has only ensured a
\nstring of half-baked recoveries.<\/p>\n
Several recent self-congratulatory press releases on the
\npurported Indonesian recovery ring hollow upon examination. The
\nconcern here is that despite the recognition of the fact that the
\nbulk of Indonesia's debt problems lie in the corporate domain,
\nthe government, as well as the IMF, is once again adopting a
\nuniform kind of approach as far as corporate recovery is
\nconcerned.<\/p>\n
In fact, the approach adopted by the government cannot be
\nlabeled \"corporate recovery\" -- it is more of a debt-collection-
\ncum-asset-disposal exercise with little or no regard for the
\nimpact a ham-handed approach would have on the overall economy.<\/p>\n
IBRA has the onerous task of recovering the debts and they
\nhave essentially stepped in where the original lenders failed to
\ncollect.<\/p>\n
IBRA has to take cognizance of the fact that its entry into
\nthe corporate restructuring process is more than two years late.<\/p>\n
By this time most companies are either well down the road in
\ntheir negotiations with their respective creditors or have sunk
\neven further in the morass of overindebtedness.<\/p>\n
Doubts are being raised now on whether IBRA is prepared to
\ndovetail its efforts with other creditors who are on the verge of
\nconcluding their restructuring with corporations.<\/p>\n
The concern here is that since IBRA is dealing with huge
\nvolumes of problem issues and has limited experienced resources
\nat its disposal, it might fall prey to the temptations of using
\nthe \"black box\" or \"template\" approach.<\/p>\n
This is precisely what is happening. IBRA, once it has put the
\ndebtor through the acid test of being \"cooperative\" or
\n\"noncooperative\", irrespective of the case it is handling, has a
\ncommon template for all obligers irrespective of their size,
\nsecurity, nature, viability, social impact and future prospects.<\/p>\n
The concern here is that this template approach is being
\ndeployed under pressures of being \"transparent\". It is more than
\nobvious now that the government is confusing templating for
\ntransparency.<\/p>\n
A \"one-medicine-cures-all\" kind of approach, in this case, is
\ngoing to be disastrous and is definitely a breeding ground for
\ndebating the legalities of the approach.<\/p>\n
The government has passed the buck of its economic woes to the
\nbanks, the banks to IBRA and now IBRA will pass it on to the
\ncorporations.<\/p>\n
In Malaysia, the buck clearly stops at Danaharta.<\/p>\n
IBRA was founded in early 1998 as a direct consequence of the
\ncollapse in the banking system. The founding of IBRA was done
\nthrough a presidential decree and IBRA was subsequently mandated
\nunder an amendment to the banking law and empowered as the agency
\nwith special powers to oversee the rehabilitation of the
\nfinancial sector.<\/p>\n
The focus, without doubt, is on resurrecting the banking
\nsector with the underlying assumption that once the banking
\nsector is up and running the rest of the economy will follow
\nsuite.<\/p>\n
IBRA is authorized to take over and control troubled banks as
\nwell as to dispose off assets and collateral.<\/p>\n
Organizationally, IBRA falls under the purview of the Ministry
\nof Finance but has been endowed with a fair degree of autonomy.<\/p>\n
IBRA enjoys far greater powers and stature when compared to
\nDanaharta, but its performance appears lackadaisical when
\nmeasured in terms of the number of ailing banks restored back to
\nlife as well as disposal of assets or simply in terms of \"kick-
\nstarting\" economic growth.<\/p>\n
It is quite obvious that simply bestowing an arsenal of powers
\non an institution does not necessarily guarantee an efficient
\nrecovery operation (though the jockeying and the politicking for
\nthe top slots of this powerful and influential institution
\nsuccessfully helps in distracting from the task at hand).<\/p>\n
The Malaysian banking system, in the meanwhile, despite the
\npoliticking and criticism, is slowly chugging back to health and
\nthere is a steady growth in lending activity.<\/p>\n
Danaharta was established by the government to act as
\nMalaysia's national asset management company to deal with the
\nrising level of NPLs.<\/p>\n
Danaharta was incorporated under the Companies Act 1965 on
\nJune 20, 1998 and is wholly owned by the government through the
\nMinistry of Finance (Incorporated).<\/p>\n
While IBRA's mission statement clearly focuses on reviving the
\nbanking sector, Danaharta's mission statement reads as follows:
\n\"Remove the distraction of managing nonperforming loans from
\nfinancial institutions in Malaysia and to maximize the recovery
\nvalue of acquired assets\".<\/p>\n
The difference in the mission statements underlines the
\nemphasis on the respective approaches of the institutions. The
\nobjectives of Danaharta directly address the distractions facing
\nthe financial institutions in Malaysia today.<\/p>\n
Danaharta will, by purchasing and managing NPLs, allow
\nfinancial institutions to refocus their attention on lending
\nactivities. Bankers can direct their efforts to normal commercial
\nbanking relationships, while Danaharta applies specialist skills
\nto managing the NPL.<\/p>\n
IBRA, on the other hand, has developed a strategy that is
\nbased upon the tacit and wrong assumption that the NPLs -- and
\ntheir underlying securities -- are actually 100 percent
\ncollectible, be it through restructuring or asset disposal.<\/p>\n
Unintentionally or otherwise, IBRA is actually letting bank
\nowners and shareholders off the hook while passing the burden of
\nthe debt to the common man.<\/p>",
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