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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