IBRA finds itself in another mess for its loan sales<\/p>\n
Vincent Lingga, The Jakarta Post, Jakarta<\/p>\n
The Indonesian Bank Restructuring Agency (IBRA) seems not to
\nbe fully aware yet that credibility and accountability should be
\nits basic capital in executing its primary task, which is
\ndisposing of the billions of dollars of distressed assets under
\nits management.<\/p>\n
Or is this agency, the most vital instrument for the economic
\ncrisis management, so fully controlled by corrupt officials that
\nit is truly a den of thieves, as many have alleged?<\/p>\n
Almost all the major deals it has made since 2000 have been
\ndogged by controversy, battered by allegations of collusion and
\ncorruption. This despite its supervision by an independent
\noversight committee, ombudsmen, an internal audit department and
\nState Minister for State Enterprises Laksamana Sukardi,
\nsupposedly one of the Cabinet members with impeccable integrity.<\/p>\n
IBRA's auction of Rp 135.4 trillion (US$15 billion) of bad
\nloans last month, billed as the mammoth asset sale of the year,
\nended in another controversy, causing uproar in the mass media
\nand forcing the government to set up a special task force to
\ninvestigate allegations of conflicts of interest and corruption.<\/p>\n
The auction process started in early June with steps to ensure
\na high standard of transparency. These steps included conducting
\nan information campaign through investor forums and the IBRA
\nwebsite, and establishing clear-cut step-by-step procedures and
\nlegal safeguards to prohibit original debtors from taking part in
\nthe bidding.<\/p>\n
The massive asset sale was warmly welcomed, as it was expected
\nto achieve three strategic objectives: releasing corporate debts
\nfrom the IBRA \"hospital\" to new creditors, allowing banks to
\nexpand their loan portfolios and reducing the government's
\ndomestic debt and its spending on the interest on bonds.<\/p>\n
About 231 domestic and foreign investors submitted bids,
\nresulting in Rp 81.6 trillion in bad loans being sold for Rp 23.1
\ntrillion, or a recovery rate of 28.3 percent. This rate was not
\nbad, compared to the 20 percent recovery rate achieved by the
\nasset managers in South Korea and 27 percent in Thailand.<\/p>\n
But suddenly, boom! Allegations of collusion and corruption
\nerupted, and rumors began to fly of several IBRA officials buying
\nluxury cars.<\/p>\n
As it turned out, a shareholder and key executive of PT Anugra
\nCipta Investama, one of the biggest winning bidders, is Wicaksono
\nAbadiman, a cousin of Mohammad Syahrial, deputy to the IBRA
\nchairman in charge of asset management.<\/p>\n
Yet more damaging to the credibility and perceived fairness of
\nthe auction is the fact that Abadiman is a former president of
\nstate-owned PT Bahana Securities, which together with another
\nstate firm, Danareksa Sekuritas, had been a financial adviser to
\nIBRA and was heavily involved in valuing distressed assets at
\nIBRA, including a good portion of the bad loans entered into the
\nauction.<\/p>\n
Why is this seemingly small matter so damaging to the
\ncredibility of the auction process?<\/p>\n
Because information is the key for investors to assess the
\nbusiness prospects of debtors, and to set their bid prices
\naccordingly. It is quite obvious, therefore, that asymmetrical
\ninformation is quite a big disadvantage.<\/p>\n
Anugra Cipta should not have been allowed to take part in the
\nauction, not only because Abadiman is a cousin of Syahrial, one
\nof the key decision-makers at IBRA, but primarily because he was
\nvirtually an insider who had been well informed of many of the
\ndistressed assets put on sale.<\/p>\n
State minister Laksamana set a good example of good governance
\nin May by deciding not to appoint his elder brother as the new
\npresident of state-owned PT Garuda Indonesia, even though Samudra
\nSukardi was the most qualified candidate for that position,
\njudging by his technical competence, his managerial record and
\nthe full support he received from the state company's employees.<\/p>\n
But this time, he did not intervene to prevent a conflict of
\ninterest.<\/p>\n
Possession of information was naturally a great advantage,
\nbecause quite a large portion of the bad credits being auctioned
\nhad not yet been restructured. Investors would still have to
\nrestructure the dud loans they bought, a process that would
\nrequire formidable negotiations with corporate debtors about new
\nterms, repayment schedules and even some refinancing packages.<\/p>\n
Anugra Cipta enjoyed another huge advantage because it allied
\nitself with Bank Mandiri, the country's largest bank, which was
\nset up in 1999 as the result of a merger of four state banks.
\nThese now defunct banks handed over Rp 178 trillion of about Rp
\n292 trillion in bad loans IBRA took over from closed,
\nnationalized and state banks in 1998 and 1999.<\/p>\n
True, there is no regulation that bans the relatives of IBRA
\nofficials from taking part in transactions with the agency. But
\nif IBRA is truly serious about maintaining a high degree of
\ncredibility, developing good governance and high standards of
\nbusiness ethics, it should have prohibited the relatives of
\nsenior officials with decision-making authority and those with
\ninside information from doing business with IBRA.<\/p>\n
IBRA never seems willing to learn from its past mistakes,
\nincluding the alleged collusion-ridden auction of Indomobil, the
\ncountry's second largest automotive group, last December.<\/p>\n
A two-month investigation by the Business Competition
\nSupervisory Commission earlier this year pieced together solid
\nevidence showing that the three final bidders in that auction --
\nPT Alpha Sekuritas Indonesia, PT Bhakti Asset Management and PT
\nCipta Sarana Duta Perkasa -- conspired to determine the winner of
\nthe tender.<\/p>\n
The evidence clearly described how two bidders, Alpha and
\nCipta Sarana, shared information and knowledge for their bids.
\nThis conspiracy, the commission stated, was made possible because
\nPranata Hajadi was an investor in both Alpha and Cipta Sarana.<\/p>\n
It is sad to note that except for Bank Mandiri, most of the 20
\nlargest winning bidders of last month's auction are investment or
\nsecurities companies, with little capital and not much experience
\nin debt restructuring, let alone refinancing capability.<\/p>\n
The strategic objectives of bad loan sales can only be
\nachieved if most of the buyers are banks, capable of
\nrestructuring the debts and refinancing the corporate debtors to
\nenable them to resume full-capacity operations.<\/p>\n
Given its messy image, IBRA might learn a lesson from Indian
\nMinister of Privatization Arun Shouri, who also faces constant
\ncriticism from fellow ministers, trade unions and
\nparliamentarians anytime he disposes of a state company. Yet in
\nless than two years, Shouri has succeeded in selling 22 state
\ncompanies, raising $2.2 billion.<\/p>\n
As part of his overriding attention to maintaining the
\nintegrity and credibility of every deal he makes, Shouri goes
\nthe extra mile.<\/p>\n
Shouri turns over all documents to the Indian auditor general
\n(the equivalent of Indonesia's Supreme Audit Agency) the day
\nafter each sale, even though he is not legally required to do so.<\/p>\n
IBRA may also be well-advised immediately to hand over all
\ndocuments to the Supreme Audit Agency after each major
\ntransaction, to prevent controversy and to uncover early on any
\nwrongdoing that may have occurred.<\/p>",
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