IBRA faces tough challenges in meeting target

JAKARTA (JP): The Indonesian Bank Restructuring Agency (IBRA) admitted that the challenges ahead would be "incredibly huge" in meeting its 2001 target.

IBRA deputy chairman Slamet Sumantri said that the agency would find it difficult to obtain a good price for its banking assets because of competition from other similar agencies in neighboring countries.

"The challenges ahead are incredibly huge ... It's a buyers' market where buyers tend to dictate prices," Slamet told a press gathering late last week.

"IBRA is competing with other agencies in the region," he added.

He also said that legal certainty and stable security conditions -- which are currently lacking in Indonesia -- were among the crucial factors that would attract foreign investors to purchase local assets.

IBRA is targeted to raise some Rp 27 trillion (US$2.84 billion) in cash to help finance the 2001 state budget deficit estimated at 3.7 percent of gross domestic product.

Last year, the agency was targeted to raise Rp 18.9 trillion, but it managed to raise Rp 20.7 trillion.

The agency plans to raise cash by selling its various banking assets and recovering the huge non-performing loans (NPLs) under its management.

"The IBRA (2001) target is actually much higher than that ... it's almost double last year's target," Slamet said, pointing out that in addition to the Rp 27 trillion cash target, the agency would also have to swap approximately Rp 10 trillion worth of government bank recapitalization bonds for loans which have been restructured by IBRA.

The government has issued around Rp 430 trillion worth of bonds to help finance the country's bank recapitalization program. The state budget covers the interest on the government bonds, which for the term of the 2001 budget is forecast at Rp 55 trillion.

In a bid to ease down the pressure on the budget, part of the bonds would be retired by swapping them for the IBRA-restructured loans.

IBRA manages around Rp 260 trillion worth of non-performing loans (NPLs), transferred by ailing and closed banks in 1998 and 1999 when the country's financial crisis was at its peak. The agency is mandated to restructure and recover the loans.

But Slamet said that the current rising trend in domestic interest rates might become a threat to the restructuring of the NPLs.

"The 0.5 percent cut in the U.S. (Federal Reserve) interest rate hopefully can also trigger lower domestic interest rates so that debtors can repay their debts," he said.

The benchmark interest rate of Bank Indonesia SBI promissory notes has continued to increase over the past months, and currently is hovering at around 14.7 percent.

Slamet added that the restructuring process of the NPLs was also "sensitive" to the exchange rate of the rupiah.

The rupiah has been under strong pressure over the past several months, ending at Rp 9,575 per U.S. dollar late last year, which was a drop of around 27 percent from the level in early 2000.

Experts have said that the unstable exchange rate created difficulties in reaching debt restructuring agreements.

In addition to the NPLs, IBRA has also received hundreds of trillions of rupiah worth of fixed assets, including those surrendered by former bank owners to repay their debts to the government.

The agency must continue to dispose of these assets until 2004, when its mandate is expected to be fully completed.

IBRA has also nationalized four large private banks, and helped recapitalize seven private banks. The agency owns more than 90 percent of the nationalized banks, and between 50-80 percent of the recapitalized banks.

IBRA, a unit of the finance ministry, must gradually divest its ownership in the above banks.

Last year, it sold a 22.5 percent stake in the nationalized Bank Central Asia (BCA) through an initial public offering mechanism, and in the first semester of this year it plans to sell more shares in BCA so that the government will no longer be the single majority owner.

The agency also plans to sell at least a 51 percent stake in the nationalized Bank Niaga in the first semester of this year.

"The target is to sell the government's majority stakes in the two banks. But if the market conditions are good, we will sell more shares," said IBRA deputy chairman Jerry Ng, who is responsible for bank restructuring at the agency.

IBRA was supposed to sell the BCA and Bank Niaga stakes late last year, but the sale was delayed due to poor market conditions. The delay had irked the International Monetary Fund.

Slamet said that the agency plans to raise around Rp 3.6 trillion this year from the sale of the publicly-listed Bank Niaga and BCA.

He said that loan recovery was expected to contribute around Rp 12.2 trillion to the Rp 27 trillion cash target, while the disposal of stakes in various companies was expected to contribute Rp 9.9 trillion. (rei)