Indonesia 'should keep' warrants in IBRA-held firms

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)