Foreign consultants' high fee questioned

JAKARTA (JP): The House of Representatives raised an issue on Monday about the high consultancy fee, particularly for foreign consultants, paid by the Indonesian Bank Restructuring Agency (IBRA) to assist in restructuring the banking sector and recovering the massive amount of non-performing loans (NPLs).

Ruling Golkar party legislator Thomas Suyatno asked about the worthiness of the high fee, given the slow recovery of NPLs and the small proceeds from the sale of other assets under IBRA.

IBRA chairman Glenn S. Yusuf told legislators that the agency had thus far paid Rp 650 billion (about US$92.85 million) in state budget funds for consultancy fees, of which Rp 400 billion went to foreign consultants. It also spent another $10 million in loan funds from the World Bank for such fees.

"The cost is reasonable," Glenn said, citing the complex task of conducting legal and financial due diligence audit on the country's banking sector, and managing and recovering some Rp 600 trillion in various assets.

He added the consultancy fee only represents 0.1 percent of the total assets managed by the agency.

"We don't mind the high fee, but the question is whether the low output is commensurate with such a high compensation," Thomas contended during a meeting between IBRA and the House's Commission VIII for finance, banking and state budget.

Legislator Oke Supit agreed, saying that IBRA needed to speed up the recovery of NPLs to help reduce the overall cost of the bank restructuring program.

"Despite the high consultancy cost, IBRA has so far only managed to raise a small sum of revenues from the assets under its management," Supit said.

IBRA has hired two foreign major consultants, JP Morgan Co. and Lehman Brothers Inc., in addition to local consultancy firms PT Danareksa and PT Bahana.

Glenn said the foreign consultants were also needed to gain credibility for the bank and the NPLs restructuring programs.

IBRA currently controls some Rp 600 trillion in various assets including Rp 230 trillion in bank NPLs, Rp 96 trillion in fixed assets pledged by the country's business tycoons to repay debts owed to the government and hundreds of trillions of investment spending in domestic banks.

IBRA has a mission to raise Rp 17 trillion in cash for the current 1999/2000 fiscal year ending in March to help finance the Rp 34 trillion in interest costs of the government bonds issued for recapitalizing the country's banking sector. The government is expected to issue over Rp 351 trillion in bonds to finance between 80 percent to 100 percent of bank recapitalization costs.

IBRA deputy chairman Eko S. Budianto said the agency had so far managed to raise Rp 1.4 trillion in cash, mostly from the recovery of small bank loans.

All of the NPLs of major banks, including the seven state banks, as well as all types of loans from closed banks were transferred to IBRA.

Glenn was optimistic the agency could raise the targeted amount of revenue, particularly in view of the improving economic and political condition of the country.

He said the agency's priority was to sell the liquid assets pledged by the conglomerates, who were former owners of ailing banks, through the stock market.

"But we won't be engaged in a fire sale," he added.

IBRA now holds shares in many companies listed on the domestic and foreign stock exchanges. The agency, for instance, has 40 percent interest in giant automaker PT Astra International.

He said the sale of liquid assets should not cause price pressure in the local stock market and must not worry existing shareholders, particularly those in joint venture companies.

"Although we prefer divestment through the stock market to get a diverse investor base, we also consider the interest of foreign shareholders in joint venture firms," he said, arguing that the entry of new shareholders may affect the operation of the company.

In addition to liquid assets, the agency is also in control of fixed assets used to back the NPLs.

Glenn added that the agency was planning to merge prospective non-listed companies to gain a global scale for overseas listing, or merge non-listed companies with listed operations.

"This includes companies in agribusiness, export, distribution and hotel industries," he said.

"We will find specific fund managers who may be interested in these groups of companies," he added.

"Only 30 percent of the Rp 230 trillion in NPLs can be recovered if we resort to asset liquidation strategy," Eko said.

IBRA is currently focusing on recovering the NPLs owed by the country's 200 largest debtors. (rei)