Recouping liquidity loans<\/p>\n
The finance ministry's one-month blitzkrieg to force 10
\nsuspended and four nationalized banks to repay about Rp 140
\ntrillion (US$12.7 billion) in emergency liquidity finance from
\nthe central bank should satisfy the public's clamor for harsh
\nmeasures against what have long been widely perceived, rightly or
\nwrongly, as bad bankers.<\/p>\n
The parade of business tycoons arriving at the Attorney
\nGeneral's Office to face demands for payments or risk being
\ncharged with corruption could have succeeded in conveying the
\nmessage that the government is really serious about dealing
\nfirmly and objectively with recalcitrant bankers. Pictures and
\ntelevision footage of the businesspeople being hounded by
\nreporters upon arrival and when emerging from the chief
\nprosecutor's office could have been seen as a stigma to keep
\nother bankers on their toes.<\/p>\n
However, the results so far are still a long way from
\nachieving the ultimate goal of restructuring the banking
\nindustry. Even the ceding of Rp 177 trillion worth of a wide
\nrange of assets by bank owners through agreements signed at the
\nAttorney General's Office is simply the beginning of a long
\nprocess of recouping taxpayers' money.<\/p>\n
The Indonesian Bank Restructuring Agency (IBRA), which is in
\ncharge of ailing banks, and its Asset Management Unit (AMU), are
\nnow being overburdened with the complex valuation of the fixed
\nassets handed over by bankers. This not only requires property
\nvaluations but also the verification of thousands of documents
\nrelated to share certificates in more than 100 companies
\noperating in numerous areas. No less important is the task of
\nensuring that the companies in which IBRA now owns equity
\ncontinue to operate normally, otherwise the value of the shares
\nwould fall and what could eventually be recouped may be much less
\nthan what was originally assessed.<\/p>\n
Given the volume of this job and the variety of skills needed
\nfor the valuation, it is easy to see how costly are the
\noperations of both IBRA and its AMU. This cost, which is part of
\nthe overall cost of restructuring the banking industry under
\nfinancing support from the Asian Development Bank, the
\nInternational Monetary Fund and World Bank, could well be much
\nlarger than the Rp 15 trillion budgeted in the current fiscal
\nyear alone.<\/p>\n
It is therefore imperative that the hundreds of experts at the
\nAMU should be able to package the assets into such saleable forms
\nso as to get maximum net sales value. Most important too is that
\nall this process should be performed transparently to ensure
\nfairness based on market values.<\/p>\n
Nonetheless, as stated at the outset of this column,
\nrecovering the liquidity finance is not the ultimate goal but
\nmore of a means to discipline bank managers and owners, to make
\nowners bear a substantial portion of the losses of their banks.<\/p>\n
True, the central bank, as the lender of last resort, is
\nobliged by law to provide timely support to illiquid but solvent
\nbanks to prevent panics and runs. But as the case of the 10
\nsuspended and four nationalized banks shows, the central bank
\npumped liquidity finance not only to illiquid banks but also to
\ninsolvent ones.<\/p>\n
One may argue that it is extremely difficult to distinguish
\nbetween illiquidity and insolvency within the banking industry.
\nParticularly at a time when the rupiah has lost almost 80 percent
\nof its value against the American dollar, the political situation
\nis uncertain and most businesses are on the verge of bankruptcy
\nas a result of punitively high interest rates and a contracting
\neconomy.<\/p>\n
Nevertheless, as most of the 14 banks were found to have
\nviolated the legal lending limits, meaning their intragroup
\nlendings far exceeded the ceilings set in the prudential
\nregulations, it is reasonable to suspect that some central bank
\nexecutives might have been linked to collusive deals with several
\nof the ailing banks. It is therefore legitimate to demand that
\nthe central bank's process of having injected so huge a sum of
\nliquidity support to the 14 banks be thoroughly audited to root
\nout corrupt bank supervisors. The bank restructuring process will
\nnever be completed if the central bank is not cleaned off venal
\nexecutives.<\/p>",
"url": "https:\/\/jawawa.id\/newsitem\/recouping-liquidity-loans-1447893297",
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"sponsor": "Okusi Associates",
"sponsor_url": "https:\/\/okusiassociates.com"
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