Resolving bad loans<\/p>\n
Its dual function as a bank support authority and debt-
\nresolution agency has made the Indonesian Bank Restructuring
\nAgency (IBRA) both the largest holding company in the country and
\nthe most powerful institution in the banking industry. As the
\nstate agency in charge of restructuring ailing banks, it now
\noversees and manages almost all of the largest banks.<\/p>\n
IBRA's asset management unit (AMU) now holds more than Rp 200
\ntrillion (US$23 billion) in bad loans and assets taken over from
\nliquidated and nationalized banks, including the Rp 100 trillion
\nit took over from the seven state banks last week. Its asset
\nholdings will further increase soon when it takes over bad
\ncredits from nine major private banks eligible to take part in
\nthe government-sponsored recapitalization program.<\/p>\n
The debt-resolution task will surely prove to be the most
\nchallenging assignment for the 13-month-old IBRA, especially
\nsince its AMU was set up only last December and about 50 percent
\nof banks' total credits have gone sour due to either unsound
\nlending practices or the rupiah meltdown and the economic
\ndepression. Though AMU appears to be a dumping ground for bad
\nassets from the banking industry, its role is no doubt quite
\nimportant. Its performance is crucial in determining how much of
\nthe hundreds of trillions of rupiah the central bank has invested
\nto support the banking industry can eventually be recovered.<\/p>\n
The debt-recovery task actually consists of two formidable
\njobs -- managing bad loans and selling the fixed assets of
\nliquidated banks. Both jobs certainly require a wide range of
\nanalysts, such as real estate specialists and experts on
\nliquidation and on other various industries and the necessary
\npower to cut through the bureaucratic labyrinth in pursuing
\ndebtors.<\/p>\n
No wonder, Government Regulation No.17\/1999 of Feb. 27 vests
\nIBRA with overarching power, including the authority to seize
\nproperty in distress and other assets from debtors, sell assets,
\ninvestigate debtors.<\/p>\n
The job of managing bad loans is a very complex process,
\ninvolving the assessment of the viability of debtors' businesses,
\nnegotiations with debtors -- many of whom are politically well-
\nconnected -- debt restructuring and, as a last resort,
\nliquidation of businesses or collateral. Put another way, AMU
\nneeds the qualifications of both a good liquidator and company
\ndoctor because debt restructuring also means business
\nrestructuring to ensure debt repayment.<\/p>\n
Given the extensive practices of imprudent lending in the
\nbanking industry, notably in state banks, which account for more
\nthan 70 percent of bad loans, one can imagine how difficult it is
\nfor AMU to sort out the wide range of bad loans and clarify and
\ndocument the various assets used to secure the credits.<\/p>\n
The recently published list of the biggest borrowers from
\nstate banks shows how politically well connected businesspeople
\nencroached upon the banks. Likewise, the excessive connected
\nlendings at private banks, as uncovered by independent audits
\nconducted over the past few months in preparation for the bank
\nrestructuring program, testify to how greedy conglomerates had
\nrobbed their own banks. But these facts also mean that most big
\nbusinesses -- bad debtors -- are now practically under IBRA's
\ndirect or indirect control.<\/p>\n
We wonder though why the government has not, right from the
\noutset, required high standards of transparency and
\naccountability from IBRA, given the complexity, political
\nsensitivity and vulnerability of the debt recovery process to
\ncorruption and collusion between AMU executives and debtors.<\/p>\n
Thus far we know very little about IBRA's activities, despite
\nits vast power and the huge amount of assets already put in its
\ntrust, except for its widely publicized recent auction of
\nautomobiles that were taken over from liquidated banks and the
\ncurrent auction of paintings. The agency, set up in late January,
\n1998, has yet to issue a financial report.<\/p>\n
The government's letter of intent to the International
\nMonetary Fund in mid-November regarding reform measures did
\nmention that an independent review committee had been established
\nto enhance the transparency and credibility of IBRA operations.
\nBut no further details were given as to the members of the
\ncommittee or how and which agency audits IBRA's operations.<\/p>\n
Without a high degree of transparency and accountability it
\nwould be rather impossible for IBRA to establish credibility. It
\nwould instead remain highly vulnerable not only to corruption but
\nalso to misguided politics by some senior officials obsessively
\nbent on redistributing assets outside the market mechanism.<\/p>",
"url": "https:\/\/jawawa.id\/newsitem\/resolving-bad-loans-1447893297",
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