Panic recovery of credits<\/p>\n
The capricious manner in which the finance ministry has sought
\nto recover the more than Rp 140 trillion (US$18.6 billion) in
\nliquidity support given to 14 troubled banks which were taken
\nover or suspended in August is the hallmark of a government in
\npanic, feeling the constant criticism of suspecting people.<\/p>\n
The enormous pressure on the government to recover the funding
\nas quickly as possible is understandable not only in terms of its
\nbudget needs but, most importantly, out of the sense of justice
\nfor the taxpayers. The public outcry over the pumping of such a
\nhuge sum of taxpayers' money into troubled banks at a time when
\nmore than 80 million people are living in absolute poverty is
\nentirely understandable. After all, most of the distressed banks
\nare owned by the conglomerates who already owe billions of
\ndollars to state banks.<\/p>\n
But the government's blitzkrieg effort to recoup the huge
\nloans generated little more than media headlines for almost three
\nweeks in September when once-powerful tycoons, mostly ethnic
\nChinese, were seen rushing to appointments with special
\nprosecutors at the Attorney General's Office. The panic even
\nturned into a mini-drama when some nationalist politicians within
\nPresident B.J. Habibie's cabinet wanted to seize the opportunity
\nto quickly redistribute assets to cooperatives and native
\nbusinesspeople. This hidden agenda might have prompted the
\ncountry's most important economic advisor, International Monetary
\nFund Director for the Asia and Pacific region Hubert Neiss, to
\nintervene.<\/p>\n
The finance ministry, through the Indonesian Bank
\nRestructuring Agency (IBRA), initially set the deadline for the
\nrepayment of the huge loans as Sept. 21, threatening bank owners
\nwho failed to meet the deadline with criminal charges. To show
\nthat it was really serious about its warning, the bank owners,
\nwho included the country's most prominent tycoons, were summoned
\nto the Attorney General's Office to complete the legal details.<\/p>\n
While most banks failed to meet the deadline, IBRA found
\nitself being \"inundated\" with assets, mostly in the form of
\nshares in more than 120 enterprises which were ceded by the
\nowners of three banks -- the Salim and Gajah Tunggal groups and
\nbusinessman Sudwikatmono. Another backtrack set Oct. 31 as the
\nnew deadline by which all bank owners would have to produce
\nconcrete programs to repay their debts in cash within one year.<\/p>\n
However, just like the first, the second deadline was doomed
\nto fail given the cash-strapped condition of almost all
\nenterprises in the crisis-ridden country. Minister of Finance
\nBambang Subianto confirmed on Friday that the terms of the debt
\nrepayment were being renegotiated, possibly resulting in easier
\nconditions over a longer period of time.<\/p>\n
Whether or not the change was prompted by Neiss, who
\nreportedly advised Habibie through an Oct. 18 letter against
\ninsisting on debt repayments in cash within one year, a more
\neffective debt recovery program is warranted to prevent a more
\ndevastating backlash on the depressed economy.<\/p>\n
After all, the problem should also be blamed partly on the
\nlack of both technical competence and political autonomy on the
\npart of the central bank (Bank Indonesia) which in the first
\nplace made the panic injection of liquidity assistance to
\ntroubled banks irrespective of whether they were simply illiquid
\nor already insolvent. Things were made even more complex after
\nthe government decided to dump all distressed banks and their
\nliabilities onto IBRA. But this was set up only in February and
\ntherefore completely in the dark about the past track records of
\nthe ailing banks.<\/p>\n
It would indeed be counter-productive for the government to
\nvindictively force the debtors to sell their domestic assets
\n(enterprises) as quickly as possible under the presently
\ndepressed market conditions. Such a fire sale would not only
\ngenerate small returns but also severely disrupt the operations
\nof the companies. The resulting impact on the whole economy would
\nbe devastating, especially since many of the surrendered
\ncompanies operate in vital sectors such as food.<\/p>\n
A better solution seems to be more thorough renegotiations
\nwith the bank owners to allow for a better evaluation of the
\nassets and their cash-flow prospects on which repayment terms are
\nreset. As the economy stabilizes and recovery starts, IBRA can
\nthen unload the assets through private placement to strategic
\npartners or public offerings to accelerate repayment. This
\nshould, however, be followed immediately by more vigorous efforts
\nto collect the credits of the troubled banks.<\/p>\n
Most importantly, the liquidity support fund should remain
\nsubject to penalty interest rates and debtors who negotiate in
\nbad faith should immediately face the full force of the law.<\/p>",
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"sponsor": "Okusi Associates",
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