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.