IBRA to close books

IBRA to close books

The government has rightly decided to conduct an independent
audit on the assets to be left behind by the Indonesian Bank
Restructuring Agency (IBRA), which will end later this month its
political mandate as one of the most important instruments in
managing the economic crisis.

The move would minimize legal problems and other complex
issues related to asset valuation, which IBRA had grappled with
right after its establishment in early February, 1998.

Since the government has decided to no longer extend the IBRA
mandate, its remaining assets will be transferred to an asset
management company that is yet to be established.

However, given the imbroglio, controversy and endless waves of
corruption allegations IBRA has encountered over the past six
years, a comprehensive audit must be conducted on the estimated
Rp 40 trillion worth of assets to be left behind by IBRA when it
closes its books on Feb. 27.

IBRA is not the only one to be blamed for these problems as
the agency was desperately needed at the height of the economic
crisis. Thailand and South Korea also set up similar agencies as
part of the systems they used to manage their economic crises.

The striking differences were in the political and legal
environments in which the asset-management agencies operated. And
we should magnanimously acknowledge that the political and legal
condition in Indonesia was worse than in other Asian countries,
in terms of asset recovery.

When the government dumped 71 financially distressed banks
onto IBRA, especially during the height of the crisis in 1998,
the agency also took over more than Rp 340.72 trillion (US$40
billion) worth of 372,930 bad loans and almost Rp 360 trillion in
other forms of distressed assets.

However after the agency verified the documents and value of
the assets, it later found out that quite a number of the assets
were not adequately backed up with legal documents and their
value had steeply inflated.

Worse still, many of the bad loans had not been adequately
secured with collateral, which only reflected the extensive bad
banking practices that had marked the corruption-infested
Soeharto regime. After all, the central bank had then been
treated merely as a government tool (not politically independent)
and its bank supervisory function was subordinated to the
interests of the businesses affiliated with those in power.

No wonder, the market sharply depreciated the value of the
assets under IBRA's management, and many asset-disposal
transactions were mired in legal battles between IBRA and bad
debtors which, surprisingly, often ended up with the former being
the loser.

The legal problems and flawed asset valuation had partly been
responsible for the low recovery rate, averaging only 28 percent,
IBRA has thus far achieved in its asset disposal program.

Certainly, corrupt and collusive practices have also been
publicly perceived as being inherent within IBRA's asset disposal
because this agency is after all part and parcel of the
government, which has always been perceived internationally as
one of the most corrupt in the world.

Opinions on IBRA's performance obviously differ widely, and
the government itself has yet to decide whether IBRA will also be
subject to a performance audit, in addition to the independent
audit of its annual report.

Some analysts may consider that IBRA's performance was not so
bad after all, taking into account the inimical political and
legal conditions in which it has been operating under seven
successive chairpeople.

However, we share the view of many analysts who see IBRA's
record as quite poor on both counts, that is, banking and
corporate restructuring.

Even though the government had spent as much as 70 percent of
the gross domestic product on bank restructuring, the banking
industry remains fragile. While the real market test on banks
will take place only later next year when the blanket guarantee
on bank deposits and claims is phased out, the key indicators of
the industry at present reflect a weak condition, highly
vulnerable to shocks.

Corrupt and collusive practices have also made IBRA largely
unable to conduct corporate restructuring and to clean up the
business sector from bad businesspeople who had thrived during
the Soeharto era, mostly on the back of corruption and collusion
with senior officials and politicians.

Quite a number of the distressed assets disposed of by IBRA
have fallen back into the hands of their former owners (bad
debtors) despite the rule that bans such repossession. This means
that the bad debtors (conglomerates) have repossessed their
assets at only about 28 percent of their original value, causing
the taxpayers to bear ( pay up) the other 72 percent.

Yet the biggest loss is the total failure to clean up the
corporate sector from bad entrepreneurs. The economic crisis
could have been a golden opportunity to oust bad businesspeople
from the business world in a bid to develop good corporate
governance. But this opportunity is entirely lost now as the main
players in the corporate sector remain largely the same as those
during the corruption-infested Soeharto era.

However, as we earlier asserted at the outset of this column,
the government decision to audit the assets that will be left
behind by IBRA is the right move to prevent imbroglio and other
forms of political and financial controversy in the process of
disposing of the remaining assets.

Accepting the remaining assets without a comprehensive audit
would only create a Pandora's box.

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