Delaying asset sales<\/p>\n
Politicians and analysts with nationalistic sentiments may
\nsuspect the IMF's strong criticisms of the House of
\nRepresentatives' move last week to delay the sales of government
\nshares in Bank Central Asia and Bank Niaga as more international
\npressure to force Indonesia to dispose of its assets at fire-sale
\nprices to foreign investors. After all, such a hidden agenda has
\noften been suggested by strong critics of the International
\nMonetary Fund. They allege that the multilateral body might have
\nbeen used by foreign investors as a lobbyist to enable them to
\nacquire assets in Indonesia at very cheap prices.<\/p>\n
However, notwithstanding several mistakes made by the IMF in
\nits bailout program in Indonesia since November, 1997, such
\nsuspicions or allegations seem to be groundless. Empirical data
\nfrom countries such as South Korea and Thailand, which have been
\nmuch more successful in implementing IMF bailout programs since
\nlate 1997, have concluded that asset sales did contribute greatly
\nto helping lift their economies up from near bankruptcy.<\/p>\n
True, the House's reasoning for the delay -- waiting for
\nmarket conditions to improve in order to realize much better
\nprices -- is also quite sensible and legitimate. But this
\nposition is viable only in normal circumstances but is not
\nfeasible for distressed assets and certainly not possible under
\nthe current economic conditions where the state budget continues
\nto bleed and the quality of the Rp 600 trillion (US$69 billion)
\nworth of assets (book value) under the management of the
\nIndonesian Bank Restructuring Agency (IBRA) tends to deteriorate.<\/p>\n
The dilemma here is that without a significant jump start from
\nasset sales, the nascent recovery will remain fragile and the
\nvalue of the assets currently held or managed by IBRA will remain
\nin the doldrums. It is like a chicken-and-egg situation.<\/p>\n
Asset sales or recovery will produce several major benefits
\nfor the economy. First of all, such measures will generate
\nadditional revenues for the government to enable it to reduce its
\ndebts which for the next fiscal year alone will impose a burden
\nof Rp 77 trillion in interest payments. Without a significant,
\nsteady cut in the debt burden, the budget deficit will eventually
\nexplode to an unsustainable level, thereby increasing the
\ncountry's risk level in the eyes of international investors and
\nworsening the nation's economic woes.<\/p>\n
Yet more important than additional revenues is the fact that
\nasset sales will accelerate corporate restructuring as the buyers
\n(new investors or owners) will certainly move quickly to improve
\nthe business performance in order to raise the value of their
\ninvestments, thereby reinvigorating the economy and eventually
\nincreasing the value of the remaining assets that have yet to be
\ndisposed of.<\/p>\n
Certainly, selling distressed assets in as risky an
\nenvironment as the one in Indonesia now would be possible only
\nwith a substantial discount. As most domestic companies are now
\nsuffering from depressed domestic markets and heavy debt burdens
\nincurred as a result of the steep fall in the rupiah's exchange
\nrate, most of the assets disposed of could fall into the hands of
\nforeign investors. This phenomenon may give rise to a new wave of
\nnationalistic sentiment over the risk of the economy being
\ncontrolled by foreign interests. But the alternatives given the
\npresent situation are severely limited. Either the government
\nholds on firmly to the distressed assets but at the risk of
\ndriving the economy into total bankruptcy or allows foreign
\ncapital to provide new strength to our national capacity to take
\nover again.<\/p>\n
Without fresh capital inflows, the economy, which is now on
\nthe verge of bankruptcy, could collapse entirely. However, new
\nforeign direct investment under present conditions is mostly
\nfeasible only through asset acquisition because most economic
\nsectors are still mired in excess capacity as a result of the 14-
\npercent economic contraction in 1998. In fact, foreign
\nacquisition of assets could serve as a catalyst for other
\ninvestors to enter the country and would accelerate the corporate
\nrestructuring process through the introduction of good governance
\npractices.<\/p>\n
The entry of foreign investors into nationalized banks such as
\nBank Central Asia and Bank Niaga is especially vital because that
\nwould accelerate the bank restructuring process, which is vital
\nto sustaining the budding economic recovery. This, we think, is
\nthe reason why the IMF considered the delay in the sales of the
\ntwo banks to be quite a setback in asset recovery and the loss of
\na great opportunity to boost market sentiment in the economy.<\/p>\n
The government needs to break the ice in asset sales. Most
\nimportant, though, is that asset sales should be conducted
\nthrough an open, competitive bid system to attract the best
\ninvestors with a long-term interest in the country's economy.<\/p>",
"url": "https:\/\/jawawa.id\/newsitem\/delaying-asset-sales-1447893297",
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"sponsor": "Okusi Associates",
"sponsor_url": "https:\/\/okusiassociates.com"
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