IBRA faces tough challenges in meeting target

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)