Indonesia 'should keep' warrants in IBRA-held firms

JAKARTA (JP): Senior Harvard University economist Richard Cooper suggested on Friday that the Indonesian government retain warrants in many of the companies currently in the possession of the Indonesian Bank Restructuring Agency (IBRA).

IBRA is in the process of disposing these companies which were taken over by the government during the economic crisis of the last three years as collaterals to the massive program to bail out commercial banks.

The warrants, which give the government the right to acquire stocks in these companies at sometime in the future, would address the concerns that IBRA was not getting good value for these assets, Cooper told a discussion with journalists.

With the warrants, the government would become an implicit shareholder in these companies once they were sold, but without any say in their management, he said.

If these firms became tremendously successful, say in five years time, the government could sell its stock holding and reap the benefit, he said.

IBRA has been widely criticized from all sides for the way it was handling the sales of its massive assets.

Some say it had been too slow and thus holding back the process of economic recovery.

Others cautioned IBRA against selling them off too quickly at bargain prices, insisting that the agency waited a few more years until prices picked up.

Cooper, Harvard University's Maurits C. Boas Professor of International Economics, was in town to participate in a series of seminars and lectures at the invitation of the United States Agency for International Development (USAID).

Cooper said the warrant scheme was not a foolproof system but it would address the concerns that IBRA was selling the assets too cheaply, an accusation that was bound to emerge when the economy began to improve and the value of these companies rose.

He said the problem facing Indonesia was not dissimilar to the one Japan had been trying to deal with in its financial crisis this past decade or so.

In both cases, he said, they could not agree on the question of who should bear the costs of past mistakes: The shareholders, the creditors and bond holders, or the taxpayers?

Japan had not been able to come to a collective decision on this issue but they could not accept the fact that shareholders should lose everything, Cooper said.

The same problem is facing Indonesia today, with shareholders in these companies still hoping to recover some of the losses from the government, he said.

In contrast, the rules in the United States were clear and "brutal"; shareholders lose everything because they knew they were taking a risk when they bought the shares, he said.

"When companies go bankrupt, they lose everything. But they gain when companies are successful," he said, citing the example of the bankruptcies of savings and loans institutions for the former case and the success story of Microsoft for the latter.

In the case of Indonesia, Cooper said he suspected there would be a political struggle between shareholders and taxpayers about who should bear the costs.

Indonesia, he said, must try to clean up the mess of the past as quickly as possible. (emb)