Indonesia 'not ready' to privatize state banks in three years

JAKARTA (JP): Indonesia won't be ready to privatize its state banks in three years time as demanded by the International Monetary Fund, announced State Minister of the Empowerment of State Enterprises Tanri Abeng.

He said on Tuesday that the privatization of the ailing banks should be carried out within three to five years time to ensure that it would achieve the best market price.

"We have to be realistic with our capability," he told reporters on the sidelines of a privatization seminar organized by the Club of Journalists covering the President's Office.

The country's seven state banks which include Bank Negara Indonesia (BNI), Bank Rakyat Indonesia, Bank Bumi Daya, Bank Ekspor Impor Indonesia, Bank Tabungan Negara, Bank Dagang Negara and Bank Pembangunan Indonesia have been mired in huge sums of non-performing loans (NPLs) caused partly by unsound, politically-directed lendings for well-connected business groups.

The Indonesian Bank Restructuring Agency (IBRA) assumed over Rp 100 trillion in bad debts of the seven banks.

Sorting out the bad debt mess has proven to be complicated as IBRA has had to pass through political minefields set by the well-connected businessmen which are believed to owe the bulk of the NPLs.

The IMF pressed the government to reach a restructuring agreement with 20 of the largest debtors of the state banks as soon as possible or pursue bankruptcy proceedings against the uncooperative debtors.

Indonesia's new "letter of intent" to the IMF, which will be issued this week, will include new targets for the restructuring plans for the debtors.

The IMF has been organizing a multibillion dollar cash bailout for the crisis-hit economy.

But Tanri said that the targets set in the letter of intent could only be implemented if they're realistic.

The restructuring of the debtors is expected to provide a momentum for the overall restructuring of the real sector, which is essential for the country's economic recovery and to ensure success of the costly bank recapitalization program.

But key economic ministers seem to be divided over how to restructure the debtors.

Finance Minister Bambang Subianto insisted that the government wouldn't want to swap the debts of ailing companies with government equity participation.

Bambang also turned down a proposal to provide debt reduction, unless the debtors could make a one-time debt repayment transaction.

Other ministers seem eager to bail out the ailing companies through government equity participation considering the businesses are strategic to the country, employ a large number of people or are potential foreign exchange earners.

The debtors seem to have won the first round of fights to prevent their businesses being liquidated or their names being announced to the public.

IBRA deputy chairman Eko S. Budianto said last week that the agency had to return to the state banks the management of individual NPLs of less than Rp 25 billion.

The banks earlier demanded the government to return all their NPLs already transferred to the asset management unit of IBRA, arguing that they were better able to reach effective loan workouts with the debtors.

But a government source said the IMF Asia Pacific director Hubert Neiss who came to Jakarta last week turned down a loan work strategy offered by Bank BNI and demanded the bank to make a revision. Bank BNI is one of the state banks with the largest amount of bad debts. (rei)