RI's postcrisis financial sector<\/p>\n
By Eddy Soeparno<\/p>\n
JAKARTA (JP): Indonesia, relative to other regional countries,
\nis still lagging way behind in terms of its economic recovery.
\nThe country has just received a \"Pass\" grade from the
\nInternational Monetary Fund (IMF), after months of lengthy
\nnegotiations, followed by delays in the disbursement of much-
\nneeded funding.<\/p>\n
Not surprisingly, Indonesia is now expected to remain at the
\nback of the recovery bandwagon, especially since it is encumbered
\nby masses of unresolved political baggage. The recovery could
\nalso suffer from future setbacks should Indonesians fail to cope
\nwith living in a newborn democracy -- because democracy, as good
\nas it may seem, by nature traditionally lengthens the decision-
\nmaking process in most aspects of life, particularly politics and
\nthe economy.<\/p>\n
However, nowadays this statement is not entirely correct. In
\nthe cases of Thailand and South Korea, where democracy is in a
\nrelatively more advanced stage than Indonesia, decisions are
\nbeing made by leaders who have the faith of the people, thus
\nmaking the process more efficient, and most importantly effective
\nas the decisions are adhered to by the people.<\/p>\n
Yet, despite the above arguments, Indonesia remains a hot
\nfavorite among East Asian countries, especially since the crisis
\nforced a shake-out in the corporate and banking sectors,
\ndrastically changing the structure, if not the foundation, of
\nIndonesian businesses and ways of doing business.<\/p>\n
In short, a new and much sounder Indonesia Inc. is soon
\nanticipated to emerge from the ashes of the crisis. However, to
\nget there, radical changes need to be taken either by free will
\nor at the behest of third parties -- be it the IMF, foreign state
\ndonors, creditors, etc..<\/p>\n
In the latter case, changes will practically be forced on
\nIndonesia. But what will the country's financial environment look
\nlike in the years ahead? It will probably have the following
\ncharacteristics.<\/p>\n
* Major business ownership shifts will take place.<\/p>\n
Third party investors, not directly related to the founding
\nmembers of the business, will suddenly rise to take charge of
\nvarious establishments, while the former owners will see their
\ncontrol in these entities shrink significantly.<\/p>\n
As is widely known, most Indonesian business groups were born
\nshortly after the nation proclaimed its independence. During the
\nNew Order era, these businesses flourished and some even grew to
\nbecome major conglomerates, either through dedication and hard
\nwork or simply through favoritism, or what is better known today
\nas cronyism.<\/p>\n
And since most of the businesses are in their first or second
\ngeneration, they are usually still family-owned and run.<\/p>\n
This may no longer be the case in the near future. Most of the
\nnew breed of Indonesian business groups or conglomerates were
\nnurtured by banks, both domestic and foreign, and the current
\ncrisis will most see their dominant ownership in these companies
\nend, especially if their bankers' demands for debt payments are
\nnot met satisfactorily.<\/p>\n
Furthermore, the economic crisis has affected businesses so
\nbadly that sooner rather than later, more business owners will
\nhave to cede power to new partners, accepting the dilution of
\ntheir majority shareholdings.<\/p>\n
* Gone are the days of easy credit.<\/p>\n
Investors and creditors, in addition to demanding higher
\npremiums, will also demand high degrees of transparency and
\ninternationally accepted business standards (such as
\ninternational accounting principles), prior to funding a business
\nor industry in the years to come.<\/p>\n
Moreover, stringent credit terms and rigid conditions will be
\nimposed to a select number of borrowers trying to tap limited
\nsources of funding. Obviously, many of Indonesia's investors and
\ncreditors have still not recovered from the \"fireburns\" of the
\ncountry's economic collapse, thus the allocation of capital will
\nbe limited and selectively extended for, at least, the next five
\nyears.<\/p>\n
Nevertheless, soon after that, bankers and investors normally
\ndevelop selective \"amnesia\" and tend to overlend, overinvest or
\noverleverage themselves once again.<\/p>\n
* The domestic markets will be wide open.<\/p>\n
Historically, protected and therefore inefficient as well as
\nnoncompetitive markets will open themselves either by choice or
\nby force. Negative capital will require the corporate sector to
\nseek new investors to keep concerns ongoing, while more than a
\nhandful of financial institutions will require some form of
\nfund-raising or third-party capital injection to keep themselves
\nfrom being dragged into the Indonesian Bank Restructuring Agency
\n(IBRA).<\/p>\n
Efforts to open domestic markets have already started,
\nevidenced by the government's announcement to allow full foreign
\nownership of domestic banks.<\/p>\n
On the other hand, the private banking sector, in its bid to
\nbeef up battered balance sheets, began seeking new investors at
\nhome and abroad even before any government initiatives were
\nannounced.<\/p>\n
It is, therefore, anticipated that large European, Japanese as
\nwell as U.S.-based financial institutions will create a more
\ndominant presence in the local market by buying into the many
\nundercapitalized banks, which in return will create a more
\ncompetitive and, hopefully, sound financial system.
\n* A range of new financial instruments will be created or
\ndeveloped.<\/p>\n
The crisis should have taught everyone in the financial and
\nbusiness sectors the importance of using the right financing tool
\nfor any project.<\/p>\n
Funding mismatches and foreign exchange speculation will
\nbecome a big no-no for banks in the future, now that they have
\nbecome more prudent.<\/p>\n
As such, hedging instruments will be more frequently used,
\nespecially for clients with significant foreign exchange exposure
\nand no foreign exchange revenue stream.<\/p>\n
Hedging tools will also serve their actual purpose, namely
\nminimizing risk and not maximizing overall profitability.<\/p>\n
In addition, more long-term funding instruments will be
\ndeveloped to fund equally long-term investments, while lesser
\nreliance from bank financing will result in a rapid shift into
\ncapital market-based funding. As such, a more active bond market,
\nproviding long-term money will most likely characterize
\nIndonesia's financing structure in the future.
\n* Government-directed or politically motivated lending will all
\nbut certainly disappear.<\/p>\n
The new reform era has devoted itself to fighting all forms of
\ncorruption, collusion and nepotism, much of what the previous
\ngovernment was characterized by.<\/p>\n
By saying that, banks, especially state-owned ones, should be
\nallowed to compete with other privately owned financial
\ninstitutions in both asset quality and profitability.<\/p>\n
They should, apart from continuing their present status as
\nagents of development, also return to their basic root as risk
\nmanager and, therefore, fund only economic and unrisky projects.<\/p>\n
Financial institutions should not be encouraged or even forced
\nto fund risky automobile, toll road and other high-tech projects,
\nwhen they feel that the risks do not fall under their credit
\ncriteria.<\/p>\n
The problem with \"guided lending\" practices is that they
\nindirectly involve the use of publicly owned funds in an
\nimprudent manner.<\/p>\n
No depositor would, in his right mind, allow his money to be
\nused to finance, say, an overly ambitious car project that
\ncarries more political than economical weight. That viewpoint is
\nonly logical because politics will certainly not bring a
\ndepositor's money back, while economic-led activities should.<\/p>\n
Finally, before one can say the financial environment has
\nreached an \"after the crisis\" stage, it has to actually go
\nthrough the crisis and remain committed to implementing changes
\nin order to remain intact throughout and following the crisis.<\/p>\n
Banks and corporates, therefore, carry the burden of adapting
\nto these changes, while regulators need to respond quickly to
\naccommodate pressing demands to accelerate this new environment.<\/p>\n
Strange as it may seem, the crisis has proven -- quite
\nliterally -- to be an expensive lesson for Indonesia to learn the
\nimportance of being a more competitive and internationally
\naccepted economy. Let's just hope that the price paid for the
\nlesson learned will bear fruit to justify the current economic
\nsuffering.<\/p>\n
It is necessary to mention that it is only in Indonesia's best
\ninterests to allow the wind of change to breeze through its
\neconomic and financial systems. After all, it will be a whole new
\nball game once the crisis is over.<\/p>\n
The writer is a corporate finance director of American Express
\nBank.<\/p>\n
Window: Strange as it may seem, the crisis has proven -- quite
\nliterally -- to be an expensive lesson for Indonesia to learn the
\nimportance of being a more competitive and internationally
\naccepted economy.<\/p>",
"url": "https:\/\/jawawa.id\/newsitem\/ris-postcrisis-financial-sector-1447893297",
"image": ""
},
"sponsor": "Okusi Associates",
"sponsor_url": "https:\/\/okusiassociates.com"
}