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.