A smart way of controlling Indonesia's money Pitan Daslani Journalist Jakarta

If you wish to control Indonesia's money, buy its banks. In its portfolios, there are large amounts of risk-free government re-capitalization and treasury bonds on which you would feast as the cash-strapped government would continue to pay interest obligations in return for your generous bid.

Farallon Capital knew it too well. Teaming up with cigarette producer PT Djarum Kudus, it is now rejoicing with godsend interest payments on Bank Central Asia's (BCA) Rp 57 trillion worth of crisis-born bonds without worrying about the bank's intermediary role.

A bigger harvest in the banking industry will come about this year when Bank Mandiri and Bank Danamon are divested. It would jolt the Indonesian public, and would represent a pestilent harvest for the government. And yet it could be a rewarding era for foreign investors wishing to strengthen their foothold here.

In the case of Bank Danamon, the buyer would feast on the interest payments worth Rp 20 trillion, despite the fact that the total value of its government bonds is Rp 40 trillion. This is why Djarum Kudus is preparing to grab Bank Danamon, either through a partnership with Farallon in Farindo Investment Ltd, or through other avenues.

Bank Mandiri, meanwhile, would give the buyer self-generated revenue from government interest payments and installments on nearly Rp 100 trillion worth of recapitalization bonds, not to mention that from Treasury bonds absorbed in early January. Mandiri is aiming, if not silently moving, to buy back credits previously taken over by IBRA.

These banks are to be divested along with 14 other state-owned enterprises this year. Apart from a reluctant state-oil and gas company Pertamina, Bank Mandiri and Bank Danamon are gold mines.

The government needs to reduce by Rp 40 trillion this year the burden of its Rp 650 trillion worth of recap bonds held mainly by state banks through the issuance of T-bonds and T-bills, as well as through the repurchasing of IBRA assets to be done by the state banks. These will all go into the banks' treasury -- a lucrative gold mine that investors will not ignore.

What you need to do is team up with local good-performing corporations whose stocks are included in the blue-chip category, or, for more efficiency, set up a consortium in Singapore, Malaysia or Hong Kong, even if it had to involve old owners of the companies whose assets have been confiscated by IBRA.

This sounds weird but old actors master the ins and outs of local market tricks, and the art of evading all the curious officials and lawmakers eagerly standing by the divestment process.

The government does not like this theory, neither do the paid demonstrators. Yet money recognizes no nationalism. For if the government had ever liked it, it would not have acted like a late Santa awkwardly offering more than necessary to strategic investors.

Then, just watch local professionals run the show. Your almost 50 percent stake does not make it necessary to worry about how the business is run. Wait for the turn of the year to treat yourself to generous dividends. Pay the directors and managers in rupiah, not U.S. dollars. Be sure to retain your foreign financial advisers to prevent foul play on the floors of the Jakarta Stock Exchange or in currency trading and project financing.

Maintain friendly and personal relationships with relevant officials and fussy legislators, and you have a strong foothold in the banking sector.

State-owned companies on the offering list today, apart from Bank Mandiri and Bank Danamon, are Indo Farma, Pupuk Kaltim, Wisma Nusantara, Kimia Farma, Sucofindo, PTPN II, Sarinah, Soefindo, TBB Bukit Asam, Krakatau Steel, Bank Mandiri, Angkasa Pura II, Indocement and Semen Gresik.

If you could set up such consortiums to join the race and take over those state-owned corporations in banking, pharmaceutical, airport management, mining, fertilizer production, plantations, the steel industry, the cement industry, hotels, shipping inspection & surveying and retail sectors, you would be the owner of the Indonesian economy with a vast business empire that would be as honored as the IMF.

And if 20 more people like you come and do the same, you would play the role that privileged tycoons once did during the Soeharto era.

Such is the evolving mainstream in Indonesia's business politics today. Cutting off the IMF life-line by the end of this year would require a gigantic effort to generating domestic revenue for which there are only three options in sight today.

First, widen the tax base and improve tax collection. This is favorable, but walls put up by those with "vested interests" and the erosion of the authority of law coupled with endless and aimless political infighting may kill the idea.

Secondly, enhance penetration of the global market to bring home more export revenue. But rising industrial production costs continue to weaken Indonesia's competitive edge.

This option requires revival of the real-sector economy, for which re-activation of the banking industry's intermediary role to a significant level is a must. This course is unfortunately being blocked by continuous offers of government bonds which lullaby the banks into a deep sleep.

The third, preferred option, is selling off state assets to get quick revenue. Arguments of financial urgency have defeated nationalism to the extent that the government does not wish to take a break until it has sold everything in the backyard, regardless of the future consequences.

But as of November 2002, according to a Bank Indonesia report published by IndoCapital.com, the total net profits of 141 Indonesian banks stood at Rp 800 billion against their total assets worth Rp 1,096 trillion. So the ratio of profit margin against assets was only 0.07 percent. Is all this is why the government is hastily finalizing preparations for selling them off to strategic investors?

Foreign investors can never rule Indonesia's economy in the political lexicon. However, every chance is now open for international investors to turn this country into a kind of Indonesia Inc. The second trendy step -- after the investors' traditional entry -- is to buy Indonesian banks and other corporations of their scale.

The third step may be setting up of a new IMF-like lending group comprising multinationals with investments here to provide loans to the government of Indonesia Inc. It really sounds weird now, but it is very probable, given the orientation of the upside-down world of business politics today.