Asset redistribution must put people first

Asset redistribution must put people first

Several commercial banks have failed to repay liquidity
support to Bank Indonesia, the central bank, because their debtor
companies defaulted on repaying their debts. Economist Kwik Kian
Gie discusses the possible redistribution of assets after the
acquisition of the banks and their debtor firms by the
government.

JAKARTA (JP): Some experts have disclosed that redistribution
of assets is possible now because thousands of companies will
come into the government's possession after the failure of many
major commercial banks to repay the liquidity support they
received from Bank Indonesia.

Based on the new bankruptcy law, it will be easy for the banks
to confiscate assets of the debtor companies which failed to
repay on their borrowing. Because the banks have been confiscated
by the government, the latter will suddenly own thousands of
firms, according to experts quoted by Kompas daily in its Aug. 27
edition.

Affected by the stagflation (stagnant growth-high inflation)
economy, the debtor companies are now suffering from huge losses;
some of them have even stopped operation. Because their assets
are calculated on the basis of a discounted cash-flow method
while their debts are carrying interest rates of up to 60 percent
per annum, their cash flow is nil and their net worth negative.

With liquidity support provided by Bank Indonesia reaching
about Rp 140 trillion (US$11.6 billion), the number of companies
to be confiscated by the government may reach thousands or even
tens of thousands.

Redistribution of assets is unknown in noncommunist countries,
where income redistribution is introduced, particularly through
taxation. Redistribution of assets is generally introduced
through the nationalization of existing companies by a country
transforming its political system from capitalism to communism.

Indonesia is, of course, not a communist country and is even
opposed to communism. But economic depression, stagflation, poor
management and supervision of banks, pragmatist and reactive
monetary management and avaracious rent-seeking parties are
driving the Indonesian economy toward a communist system. With
the realization of the situation, some figures are welcoming the
possible redistribution of assets because, caught up in their
emotional euphoria, they see the possibility of acquiring
companies at low prices.

Redistribution of assets is actually a completely new
ideology, whose implementation in Indonesia does not guarantee
prosperity for the people. If the assets of the confiscated
companies were distributed freely to the people or cooperatives,
how should the criteria be set for those eligible to receive
them? If they were sold at certain prices, how could the poor
afford to buy them?

The possible answer is that the assets should not be
distributed to individuals but should be instead controlled by
the state, so their benefits could be equally enjoyed by the
people.

It is true that such a case should not necessarily mean the
implementation of communism because some companies have no bad
debts. But the majority of firms in the country have their debts
going sour.

According to government officials, the state's ownership of
the troubled companies and banks will be temporary as their
shares will be offered to the public through the Jakarta Stock
Exchange. If that is the case, only rich people will be able to
buy them, whereas the most eligible targets of asset distribution
should be the poor, whose deprivation has stimulated the
international community to provide $14 billion in aid through the
International Monetary Fund (IMF) and the Consultative Group on
Indonesia (CGI).

Perhaps, foreign investors will be willing to buy the
companies' shares if their assets are calculated on the basis of
a 10 cent-for-the-dollar method. But if that is the case, the
government will never recover the entire amount of its liquidity
support for the troubled banks.

The Indonesian economy would also return to its condition
during the colonial period, when economic activities were
dominated by Dutch companies. After independence, the firms were
nationalized or their management Indonesianized.

During the New Order era, the government persuaded foreign
investors to enter Indonesia by offering various incentives.
Indonesia was then open for the operation of foreign companies
under a modern term of globalization.

The government, therefore, was very active, participating in
various international organizations, such as the Asia Pacific
Economic Cooperation (APEC) forum, while the private sector,
particularly its conglomerates, was establishing close links with
foreign investors and creditors until their offshore debts
reached $80 billion.

The debt-supported ballooning economy exploded when many of
the companies' debts matured at the same time. Now comes the idea
to sell companies to foreign investors at low prices, bringing
Indonesia's economic development in a full circle: Colonization-
nationalization-Indonesianization-globalization-foreignization
(just like colonization). But technocrats will no doubt argue the
fine point that foreignization and colonization are not
interchangeable.