Corporate restructuring a must
Corporate restructuring a must
Politicians who whip up narrow-minded nationalistic sentiment
against foreign investors acquiring assets in Indonesia seem
unaware of how vital asset disposal, corporate restructuring and
divestment of nationalized banks are to economic recovery.
They overlook the reality that companies which are hostage to bad
debts will remain closed to credit lines, thereby unable to raise
production rates to meet domestic and export demands.
Banks are thus deprived of creditworthy borrowers to funnel their
excess liquidity, and they are forced to continue relying mainly
on interest revenues from the government bonds they hold as their
capital.
The sale of distressed assets is also vital as only new, credible
investors will be able to reinvigorate these businesses by
bringing in better management and fresh capital.
Technically bankrupt companies are virtually in a state of limbo
as long as they are under the Indonesian Bank Restructuring
Agency (IBRA), with it unclear if they are owned by the agency or
their founders. Without definitive ownership, there is always the
temptation for the management and old owners to strip assets.
Divestment of nationalized banks is equally crucial because
almost all the largest banks are now majority owned by IBRA. As
long as these banks are under IBRA control, they will remain
fragile, unable to fully regain market confidence.
Only new majority owners with high integrity, an international
reputation and extensive networks will be able to accelerate the
operational restructuring of the banks, something that has become
more imperative than ever as the government begins phasing out
its blanket guarantee on bank deposits and claims next year at
the latest.
Further postponing the establishment of a deposit insurance
scheme to replace the blanket guarantee not only creates a moral
predicament but also exposes the government to huge contingent
liabilities.
Moreover, banks need to allocate more resources to rebuild what
analysts call their informational capital-the base of
creditworthiness information-without which their lending ability
will remain impaired.
Information on corporate creditworthiness, which the banks
compiled and stored in their system for decades, was destroyed
when almost all major banks collapsed in 1998.
Rebuilding a reliable creditworthiness information system is both
expensive and time consuming because the system actually sums up
both lending mistakes and successes, and with the information
accumulated rendered highly corporate specific.
The catch is that without a reliable and broad creditworthiness
information base, banks are either highly averse to new lending
or vulnerable to bad credits. Such a condition is unconducive to
corporate growth in Indonesia, where the capital and money
markets still acutely lack depth and breadth.
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