Asset-for-loan deal new burden for govt

Asset-for-loan deal new burden for govt

By Reiner S.

JAKARTA (JP): The asset-for-loan payment scheme offered by ex-
owners of suspended and nationalized banks to the government last
week, is an early indication of the authorities failure to
quickly and efficiently recoup the massive loans channeled into
the troubled banks.

Critics say that the various forms of fixed assets waived by
the country's business tycoons for the loan repayments, will take
the Indonesian Bank Restructuring Agency (IBRA) a much longer
time to recoup the more than Rp 141 trillion (US$12.8 billion) in
Bank Indonesia liquidity support, as the market for the assets is
currently very weak.

In addition, verifying the legal aspects of the assets and
revaluing their economic worth would be time consuming and
require diverse expertise, raising the cost of the efforts to
recover the liquidity support.

Finance Minister Bambang Subianto admitted these problems.
"It will be easier for us if it is in cash, because if it is in
the form of assets we have to revalue it again, and if the assets
are in the form of companies the revaluation will be even more
difficult," he said last week, pointing out that legal
verification should also be conducted to check for liabilities to
other parties.

"This policy is wrong. The government should have insisted on
a cash payment method," former banker Sutan Remy Sjahdeini told
The Jakarta Post, adding that the asset-for-loan settlement only
creates new burdens for the government, for obvious reasons.

An official at IBRA said on Saturday that some of the assets
offered by ex-owners of the ailing banks would have to be
rejected because of legal defects.

Two of Indonesia's largest conglomerates, the Salim Group and
the Gadjah Tunggal Group, signed an agreement with IBRA on Monday
to surrender assets (mostly fixed) claimed to be enough to repay
Rp 78 trillion of their banks debts.

Among some of the 100 companies offered by the Salim family to
repay Rp 48 trillion in debts owed by the nationalized Bank
Central Asia (BCA), included a five percent stake in its Hong
Kong-listed operation First Pacific, local car maker PT
Indomobil, cement maker PT Indocement, and the world's largest
instant noodle maker PT Indofood.

The Sjamsul Nursalim family of Gadjah Tunggal surrendered some
24 companies to cover the Rp 30 trillion loans made to the
suspended Bank Dagang Nasional Indonesia (BDNI).

The assets are subject to revaluation by the Financial Sector
Auction Committee (FSAC) under the coordination of the Finance
Minister, and legal revaluation by the Joint Investigation
Committee under the coordination of the Attorney General.

Bambang said that if the assets were not enough to cover the
obligations, the former owners of the banks had to surrender more
assets.

The ex-owners of 14 banks were given until midnight last
Monday to repay the debts, but former owners of nine banks
including timber tycoon Mohamad "Bob" Hasan, ex-owner of Bank
Umum Nasional, and property mogul Usman Admadjaja, ex-owner of
Bank Danamon, failed to meet the deadline.

Their fate will be decided by the FSAC and the JIC this week
including the possibility for criminal proceedings.

Economist Anwar Nasution said that the asset-for-loan payment
method was not effective in recouping the liquidity support
because the market for the assets was weak due to the bearish
market sentiment both domestically and overseas, and IBRA had no
capacity to manage the various forms of the vast assets.

He is also very concerned about the possibility of corruption
at the government holding companies assigned to manage the
assets.

Other analysts also lambasted the government for accepting
assets or companies that have small economic value, pointing out
that in the case of BCA, assets such as Indomobil had no
prospects due to their high import component and the dwindling
auto industry, badly hit by the economic crisis.

The economic crisis which has seen the rupiah plunge by more
than 80 percent in value against the U.S. dollar since July 1997,
has sent the banking industry into turmoil, with 16 banks
liquidated in November, seven banks suspended in April, a further
three in August and four banks nationalized last month.

The government has channeled more than Rp 141 trillion in Bank
Indonesia liquidity support since early this year to help banks
meet withdrawals by panicking depositors.

Recovering the liquidity support and restructuring the ailing
banking sector is the prime mission of IBRA.

The government has been forcing the former owners of the 14
banks to recover the liquidity support by Sept. 21, on the
grounds that they had forced their banks to channel between 70
and 100 percent of the banks capital to affiliated parties,
breaching the 20 percent legal lending limit, which caused a
serious problem for the banks and forced Bank Indonesia to inject
the massive liquidity support to help the banks remain afloat.

For other banks which have received liquidity support but had
not breached the legal lending limit requirement, like Bank Tiara
and Bank PDFCI, the Sept. 21 deadline was not imposed.

"The government should give the prudently-run banks more time
to collect deposits before repaying the liquidity support," Sutan
Remy said.