RI recovery: A distant mirage<\/p>\n
The following is the first of two articles on economic
\nrecovery by Sidhesh Kaul, a regional commentator on political and
\neconomic issues based in Jakarta.<\/p>\n
JAKARTA (JP): The statutory auditors for the Indonesian Bank
\nRestructuring Agency (IBRA) recently released their audit
\nresults. The auditors, Hans Tuanakota & Mustofa (HTM), remarked
\nin the report that the data relating to those banks under IBRA's
\nsupervision and control that were either frozen or taken over or
\nsimply recapitalized, did not fulfill the criteria of
\ncompleteness, existence, accuracy, valuation, ownership and hence
\nwere classified as un-auditable.<\/p>\n
This opinion from HTM raises doubts that either IBRA was not
\ntransparent enough with the auditors or that IBRA's execution of
\nthe bank's recapitalization, or closure, or take-over, as the
\ncase might be, was based on grounds that were questionable.<\/p>\n
In any case the situation demands that a full audit -- a
\nfinancial as well as a management audit -- be conducted so that
\nthe lapses can be identified and remedial corrections put in
\nplace. IBRA's credibility is vital to the recovery process and no
\nstone should be left unturned in allaying concerns about IBRA's
\nability and competence as the country's biggest asset manager.<\/p>\n
Although founded in 1998, IBRA got its first set of
\nregulations in 1999 under Regulation No. 17\/1999 which delineated
\nthe authority, duties and responsibilities of IBRA. This
\nregulation was silent on accounting policies and it was only in
\nMarch this year that IBRA acquired an accounting policy system
\n(vide a decision letter in 2000 from the Minister of Finance).<\/p>\n
The recent release of this accounting policy provokes thinking
\nthat the powers that seem to be playing a reactive role and that
\nthere are no cohesive guidelines on recovery -- only half hearted
\nattempts at being perceived as meeting the requirements of the
\nInternational Monetary Fund (IMF).<\/p>\n
The lack of a policy-guided approach is hindering IBRA's
\nefforts at seeking any legal remedies against recalcitrant and
\nuncooperative debtors as evidenced by the recent string of failed
\nattempts on the part of IBRA in the Indonesian courts.<\/p>\n
Progress at IBRA has been painfully slow. As a recovery
\ninstitution, IBRA manages about Rp 6 trillion in assets. These
\nassets were inherited by IBRA through the liquidation, take-over
\nand recapitalization of Indonesian banks.<\/p>\n
Most of these are in the form of loans that have been
\ncollateralized at values that are unimaginably high when compared
\nto recoverable or market value. This phenomenon has gone largely
\nunnoticed by both the Indonesian government and the IMF.<\/p>\n
During the boom times most Indonesian corporations sought
\nfunds for projects and machinery for expansion that were
\ndeliberately over valued. The difference between the actual costs
\nof the projects and machinery lined the pockets of the owners who
\nin turned greased the palms of the rent seekers within the
\nbanking and state apparatus.<\/p>\n
Corporations double-financed their sales sometimes in active
\nconnivance with the state's export-import insurance body (ASEI).
\nSome conglomerates that had their own banks within their
\ncorporate umbrella profited even more as they booked \"extra\"
\nincome simply from the timing of payments and on interest rate
\narbitrage (thanks to the Bank Indonesia's conveniently protective
\ninterest-rate spread).<\/p>\n
In fact Indonesia, at one point during the boom years, was a
\ncountry where corporations could borrow overseas and delay the
\ndeployment of borrowed capital towards productive use in the real
\nsector, and instead re-direct it towards earning interest at
\nlocal dollar rates (that were marginally higher than the overseas
\nrates).<\/p>\n
But alas, the tyranny of economics -- the magic of making
\nmoney out of thin air trifled with the basic fact that earnings
\nis a zero sum game and ill-gotten gains from those blatant
\npractices today have become Indonesia's burden.<\/p>\n
Transfer pricing was rampant with profits of corporations
\nbeing booked overseas. Company surpluses were often deployed
\ntowards off-balance sheet derivatives that held the golden
\npromise of gains that were far beyond the wildest expectations --
\nthe gains once again lining the owner's pockets while the company
\nhad to be content with the fact that seed monies were returned,
\nbut very often even this did not happen.<\/p>\n
The net result of this systematic bloodletting has been that
\nmost Indonesian corporations have productive assets that are far
\nabove market cost and generate revenues that are simply not
\nenough to repay debts.<\/p>\n
The treacherous partnership between hungry rent seekers within
\nthe state apparatus, backward-bending bankers and greedy owners
\nhas crippled Indonesia beyond the bounds of reasonable repair and
\nhas resulted in a massive betrayal of the ordinary Indonesian.<\/p>",
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