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IBRA disappoints people ahead of early closure next year
JP/ /

IBRA disappoints ahead of early closure next year

Reiner S.
The Jakarta Post
Jakarta

Officials at the Indonesian Bank Restructuring Agency (IBRA) have
been quietly talking about a severance package for themselves
after Chairman Syafruddin Temenggung announced an ambitious plan
to close the powerful agency eight months earlier than scheduled.

Its success in raising cash this year to help finance the 2002
state budget provides additional justification for the extra
bonus. But do they really deserve it?

The public does not think so.

A recent annual survey by a leading newspaper revealed that a
majority of respondents were not satisfied with the work carried
out by IBRA, particularly as regards the rehabilitation of the
weak banking sector and recovering debts owed by former bank
owners to the government. The public are also concerned with
reports of alleged corrupt and collusive practices within the
agency. This result is quite similar to that of a similar survey
last year.

IBRA was set up in early 1998 with a mission to fix the
troubled banking industry and to raise cash to minimize the
burden on the government in covering the huge cost of the 1997
financial crisis.

The agency took over various assets from troubled banks and
former bank owners, estimated to be worth a gigantic Rp 650
trillion (US$73 billion) at the time. The agency must restructure
and sell these assets to raise cash. This year, for instance, the
agency has managed to raise some Rp 45 trillion, well above the
targeted amount of Rp 42 trillion.

But IBRA has been a major disappointment in other important
areas.

Efforts to recover the debts of the ex-bank owners, who are
mostly the family and friends of former authoritarian president
Soeharto, and were considered to be the richest people in this
country at the time, are moving in a direction that will end up
with the state effectively covering the greater part of the huge
debts owed. This means that the government will have to further
cut other important spending such as subsidies for the poor,
education, health, and defense and security to be able to
allocate a larger portion of state revenue to covering the debts.
The taxpayers will also have to shoulder the burden.

What is more disappointing is that most of the ex-bank owners
will be freed from the possibility of prosecution for their past
banking crimes. These once high-flying businessmen like Sudono
Salim (founder of Bank BCA), Sjamsul Nursalim (of the now defunct
Bank BDNI), Bob Hasan (of the now defunct Bank BUN, but who is
currently serving a six-year jail term for other corruption
offenses), and Usman Admadjaja (founder of Bank Danamon),
breached the bank legal lending limits by forcing their banks to
channel most of the money to affiliated businesses. Such
irresponsible banking practices contributed to the outbreak of
the 1997 financial crisis, which prompted the government to lend
a massive amount of money to bail out the troubled banks in the
face of runs by depositors. The bank owners were also accused of
misusing these government loan, by either channeling them to
other affiliated companies or even using them to speculate
against the rupiah.

The decision to release these businessmen from prosecution was
finalized during a meeting at the house of President Megawati
Soekarnoputri late on Nov. 7, according to a report. The Cabinet
meeting was chaired by Megawati and attended by senior economics
ministers, the Attorney General, the National Police chief, and
IBRA's Syafruddin, who made the proposal, which is basically the
same as the much-criticized debt settlement schemes agreed by the
debtors and IBRA four years ago.

Under these schemes, analysts say, the state will suffer huge
losses because the assets surrendered by the debtors will be far
from enough to cover the debts as their value has either
deteriorated or might have been deliberately marked-up when they
were transferred to IBRA. One analyst estimated that the recovery
rate from the assets is likely to be only 20-30 percent.

Salim, for instance, who owes the largest amount at more than
Rp 52 trillion, had surrendered his ownership in over 100
companies, considered the jewels in IBRA's crown.
But after most of these assets had been sold, IBRA could only
rake in around Rp 18 trillion as of the end of November.

Salim is considered as having been relatively cooperative in
settling his debt.

But critics say that other debtors should be punished because
they clearly do not have any intention of settling their debts to
the state.

The government's decision to free the ex-bank owners from
their crimes and to let them escape the responsibility of fully
repaying their debts creates a moral hazard that jeopardizes the
country's drive to push for healthy and prudential banking
practices in the industry. This is because people will see that
wrongdoers can easily get away with their crimes.

Another failure by IBRA is the effort to restructure the huge
non-performing loans (NPLs) taken over from troubled banks.

A special unit under the agency, called the Asset Management
Credit (AMC) division, was initially set up to restructure these
loan assets before exchanging them for government bonds held by
the banks. When the banks transferred the NPLs to IBRA, the
government injected an equal amount of bonds.

There were at least three objectives for this restructuring
program. First, the banks could swap the recapitalization bonds
with the restructured loans so they could have a healthier asset
portfolio and reduce dependency on government bonds for revenue.
Second, if the banks return the government bonds, the state
budget burden in covering the interest rate could be reduced.
Third, by purchasing the restructured loans, the banks could
resume lending to the indebted companies and in turn help the
overall real sector to revive after the years of anemia.

But in a bid to meet the planned early closure of IBRA,
Syafruddin pushed the sale of the NPLs although most of them had
not been restructured yet. Not only did this result in a low
recovery rate, but there are suspicions that the buyers of the
loans were actually the original debtors themselves who benefited
from the large discounts offered by IBRA.

For example, the agency's largest loan asset sale was held
late in July involving some 2,532 debt accounts worth Rp 135
trillion. But only some Rp 111 trillion of the loans attracted
investors, and only Rp 52.2 trillion were sold above the floor
price set by the agency. And the investors managed to win a huge
discount, only paying some Rp 17.7 trillion for the loans.

The IBRA loan asset sale program could only provide the agency
with a recovery rate of around 28 percent. Agency officials may
claim that this was relatively better than the rate achieved by
similar agencies in Thailand (27 percent) and in South Korea (20
percent). But critics said that it took much longer for IBRA to
make the sale, making the IBRA program more costly, while
Thailand had already completed its program two years ago.

A huge part of the NPLs are also owed by some of the country's
once-mighty business groups such as Chandra Asri, Texmaco, Sinar
Mas, Djajanti, Dharmala, PSP, Gunung Sewu, Humpuss, Bimantara,
and APAC.

There are concerns that IBRA had been giving favorable
restructuring terms for these indebted business groups, again at
the expense of taxpayers who will later have to cover the losses.

Many also suspect that the sale of the NPLs has become an
arena for the debtors to illegally buy back their debts at huge
discounts. The government has banned the original debtors from
buying back their loans.

Top IBRA officials have always claimed they are unaware of
this practice. Are they really that naive? Or are they just
trying to deliberately cover up the buy back activity for certain
reasons?

Suspicion of collusion and corruption in the agency is running
high. Some analysts have said that the regulation banning
original debtors from purchasing back their loans has only
provided an opportunity for "brokers" to step in, who reap huge
commissions if they can complete the buy-backs for the original
debtors.

Finally, the restructuring work as regards the NPLs at IBRA
provides one big lesson for future debtors: If you owe money to
banks, don't repay them, or try to gradually reduce your debts
without having to make any payments.

There is still other unfinished business for IBRA ahead of its
early closure. So Syafruddin's plan to close down the agency by
June 2003, eight months ahead of the February 2004 schedule, is
raising many questions that are difficult to answer.

For instance, who will continue the work of collecting the
debts owed by the former bank owners? Who will manage the assets
surrendered by the ex-bank owners for debt settlement? And what
about the rehabilitation of the ailing banking sector?

But one big question concerns the accountability mechanism
when IBRA is officially closed down. Who will be responsible for
the poor decisions taken in the past? Will it become the sole
responsibility of the last IBRA chairman or will each chairman be
held responsible for the respective policies they adopted.

Some members of the House of Representatives wanted to launch
a special investigative audit on the agency as IBRA had totally
failed to implement its mission: from the selling of assets at
very large discounts, thus generating financial losses for the
state, to the slow progress in the rehabilitation of ailing
banks.

One analyst said that whoever is in charge of closing down
IBRA, he or she can play a role in covering up the "mistakes"
made in the past by changing documents, data, or even eliminating
evidence.