Replace Lippo management<\/p>\n
Arya B. Gaduh, Department of Economics Centre for Strategic and
\nInternational Studies (CSIS), Jakarta, abgaduh@csis.or.id<\/p>\n
The past two months have seen Lippo Bank, once again, become
\nthat annoying pebble in the shoes of the Indonesian Bank
\nRestructuring Agency (IBRA). With huge divestment
\nresponsibilities ahead, and a deadline for IBRA that is
\napproaching fast, the Lippo case threatens more than just IBRA's
\n2003 financial target for bank restructuring. It threatens the
\ncredibility of IBRA as an institution responsible to improve the
\nhealthiness of the banking sector, as well as the credibility of
\nIndonesia's financial institutions. As such, IBRA, as a majority
\nshareholder in Lippo Bank, needs to take swift action to replace
\nthe bank's management.<\/p>\n
Here is a summary of what happened. Lippo Bank's management is
\naccused of deliberately lowering the value of its own shares to
\nallow its old owner, under Lippo Group, to regain control of the
\nbank at a discounted price. The means used included a pair of
\ndifferent financial statements -- one showing a profit, the other
\na loss -- and the alleged collaboration with Lippo Group's
\naffiliated brokers to systematically lower the bank's share price
\nstarting in November 2002.<\/p>\n
With the share price at its lowest at the end of December, the
\nsecond financial statement -- declaring a sudden decline in the
\nbank's capital adequacy ratio (CAR) -- was used to justify a
\nrights issue in early January that would increase Lippo Group's
\nshare in the bank.<\/p>\n
Who is to blame for the incident? Mainly the government and
\nIBRA.<\/p>\n
The real essence of the problem does not lie in the double
\nfinancial reports, or in the stock market manipulations of late
\nlast year. The essence of the problem lies in the government's
\ndecision to return the management of the bank to a team that does
\nnot share the government's (or IBRA's) objectives -- namely, to
\nmaximize the return from the sales of Lippo Bank.<\/p>\n
Once this decision was made, what has happened over these past
\ntwo months -- or, in fact, two years -- was simply an inevitable
\nturn of events.<\/p>\n
Consider this: Mochtar Riady, the previous owner who has
\nadmitted a desire to buy back the bank, was appointed by IBRA to
\nbe its president commissioner. Half of the commissioners were
\naffiliated to the previous owner, with another half from the
\ngovernment. Most of the directors come from the Lippo Group, with
\nIGM Mantera, a former CEO of Multipolar, Lippo Group's
\ninformation technology subsidiary, as the bank's current CEO.<\/p>\n
So despite IBRA's majority share in the bank, whose interest
\nwould the management represent? The answer seems clear enough.<\/p>\n
In fact, this in itself would not be a problem if only Lippo
\nGroup's interest was parallel to IBRA's. In this case, however,
\nthey are on opposite sides. Lippo Group (read: Mochtar Riady),
\nwho is not among those barred from buying banks, wanted to buy
\nthe bank cheaply, while IBRA wanted to maximize its income from
\nbank sales.<\/p>\n
Should there be any doubt that the management will do whatever
\nit takes to achieve Lippo Group's, and not IBRA's, interest?<\/p>\n
Hold on. A skeptic would point out that the government has its
\nown representatives among the commissioners. They would be able
\nto monitor the operations of the bank. That is true, if the
\ncommissioners understand bank management. In this case, however,
\nit doesn't seem that they do.<\/p>\n
Consider a comment made by one of them, who said that the
\nmistake of putting the word "audited" in an unaudited financial
\nstatement published in the mass media was not fatal (Kompas, Feb.
\n21). Moreover, these government "commissioners" do not take their
\ncommissioning jobs as full-time occupation, and most have other
\nresponsibilities elsewhere.<\/p>\n
IBRA should have hence realized that sooner or later, Lippo's
\nmanagement would have done what it has already done -- it was
\nsimply a matter of time. Once these problems occur -- such as
\nwhen it refused to return the excess recapitalization funds to
\nthe government last year -- an appropriate and immediate damage
\ncontrol measure would be to replace the whole of Lippo's
\nmanagement with a professional management team appointed by IBRA
\nthat represents IBRA's (and the government's) interests.<\/p>\n
Interestingly enough, though, while IBRA has been threatening
\nto replace Lippo's management since Jan. 20 (Bisnis Indonesia,
\nJan. 21), nothing of the sort has materialized. At present, IBRA
\nis awaiting the Capital Market Supervisory Agency's (Bapepam)
\nreview of the market manipulation accusations before it does
\nanything.<\/p>\n
There is no point in this -- the sharp decline in the value of
\nthe bank's assets -- most of which are properties whose market
\nperformance was actually improving last year -- suggests that the
\nbank has been managed poorly. Yet there has been a perpetual
\ndelay in IBRA's decision to take a firm stand against Lippo's
\nmanagement.<\/p>\n
All of these delays are harmful, both to IBRA's reputation,
\nand to the government's chance of getting the maximum return from
\nthe recapitalization money it has invested in these banks. More
\ndelays will attract more questions. After all, it's clear that
\nthe current management has an interest that is contrary to IBRA's
\n-- why keep hidden enemies to manage your account? And if IBRA
\nneeds a precedent, there was one established in Bank
\nInternational Indonesia.<\/p>\n
So IBRA, what are you waiting for?<\/p>", "url": "https:\/\/jawawa.id\/newsitem\/replace-lippo-management-1447893297", "image": "" }, "sponsor": "Okusi Associates", "sponsor_url": "https:\/\/okusiassociates.com" }