IBRA's recovery high, but risk remains

IBRA's recovery high, but risk remains

Dadan Wijaksana, The Jakarta Post, Jakarta

The Indonesian Bank Restructuring Agency (IBRA) has so far
handed over Rp 26.1 trillion (about US$3.1 billion) to the state
coffers from its assets sale programs this year, slightly
exceeding the target of Rp 26 trillion.

Of the amount, Rp 22.4 trillion was in the form of cash, while
bonds made up the remainder, IBRA chairman Syafruddin Temenggung
said here on Wednesday.

The figures mean that the agency, which will complete its
five-and-a-half-year mandate to improve the country's banking
sector at the end of February next year, has so far raked in Rp
163.2 trillion, from selling banks and distressed assets under
its supervision.

IBRA was set up in 1998 and tasked to clean up the country's
messy banking sector, which was saddled with massive bad debts
following the 1997 financial crisis. In total, the agency took
over Rp 600 trillion worth of assets from bankrupt or ailing
banks.

The agency is mandated to restructure and sell the assets --
in the form of bank non-performing loans and fixed assets
surrendered by indebted former bank owners -- to raise funds to
help finance the state budget, which is heavily burdened by the
huge costs of bailing out troubled banks.

However, the task of contributing funds to the annual budget
has limited the agency's ability to fully restructure the assets,
forcing it, in many cases, to sell them without a proper
restructuring process, according to analysts.

Not only has this led to IBRA'S lower recovery rates, but the
sale of assets which have not yet been restructured to banks
would risk creating bad debts in the country's banking sector in
the future.

In its defense, Syafruddin repeatedly said the agency had done
its best to execute its mandated tasks, after posting a recovery
rate of 28 percent for its asset sale, which he claimed "fairly
respectable", compared to the achievement by similar agencies in
other countries.

A similar agency in China recorded a recovery rate of 8
percent, while those in Thailand and South Korea booked a
recovery rate of about 25 percent, according to him.

The rate excludes the current remaining assets that are yet to
be sold, worth more than Rp 40 trillion.

Part of the Rp 40 trillion assets will be transferred to new
companies to be established under the Office of State Minister of
State Enterprises before IBRA's mandate expires on Feb. 27.

The transfer process is expected to be completed by mid-
January.

The new companies however, according to Syafruddin, would not
be burdened by the government to contribute to the government's
budget so they could focus only on restructuring the remaining
assets.

As for the Rp 5 trillion asset sale target for next year, as
stated in the 2004 state budget, Syafrudin said the target would
be fulfilled by IBRA and not by the new companies.

The agency expects to obtain the targeted proceeds from the
sale of the majority stake in Bank Lippo and Bank Permata, and
from the on-going sale program of assets formerly belonging to
huge debtors such as Texmaco Group.

The government has also planned to set up a special unit under
the Ministry of Finance to take over the role of IBRA in
implementing the blanket-guarantee program on bank deposits.

The unit will operate on a temporary basis -- pending
the establishment of a deposit-guarantee agency (LPS), which
requires a law as the legal basis. The drafting process is still
underway.