Mission unaccomplished!
Mission unaccomplished!
From the very beginning, the activities of the Indonesian Bank
Restructuring Agency (IBRA) did not reflect its prestigious name.
The government established the agency in early February 1998, at
the insistence of the International Monetary Fund, as one of the
most important instruments to get Indonesia out of the
unprecedented economic crisis that crippled the whole region at
the time.
However, while similar agencies in other crisis countries like
Thailand, Malaysia and Korea immediately launched strategic
measures and steps to reform their banking establishments,
Indonesia dragged its feet. IBRA did not begin its operations
until the government issued a special decree more than a year
later, on February 27, 1999.
The formal name of the agency in Bahasa Indonesia, Badan
Penyehatan Perbankan Nasional, indicated its main mission.
Penyehatan literally means "action to make healthy". The agency
was expected to heal the desperately ailing banking establishment
of Indonesia, so that it could function normally to reinvigorate
the national economy.
The government dumped 71 financially distressed banks onto
IBRA. The agency also took over 372,930 bad loans worth more than
Rp 340.72 trillion (US$40 billion) and almost Rp 360 trillion in
other forms of distressed assets, which later turned out to be
inadequately backed by legal documentation and worth much less
than their reported value.
It automatically became the most powerful economic
organization in the country, managing assets worth more than
US$75 billion taken from closed and nationalized banks and
controlling the largest financial institutions in the country.
Its authority was unsurpassed in the history of the republic,
including extrajudicial power to foreclose on the assets of
debtors and to file civil lawsuits and bankruptcy petitions
against debtors.
It was not surprising that the agency was drawn into a
notorious imbroglio, in which vested-interest groups and
incessant political meddling by senior officials confusingly
intermingled with politically appointed agency officers.
Controversy, intense public scrutiny and fierce criticism became
its daily diet. It is no big surprise, then, that the agency had
to endure seven successive chairmen during its five years of
operation.
The end result is self-evident, especially when compared with
that in other previously distressed economies.
Similar authorities in Thailand, Malaysia and Korea completed
their task a couple of years ago, each with commendable
performance, including a relatively higher recovery rate in their
asset disposal programs, and a much stronger banking
establishment. All three countries have been on an economic
rebound for the last couple of years, as reflected in their
higher economic growth rates.
IBRA formally ceased operations last week, much later than in
Thailand, Malaysia and Korea. Its achievement in asset disposal
was lower, averaging only 28 percent, compared with more than 35
percent in Thailand, 29 percent in Malaysia and almost 40 percent
in Korea. The national banks, which have spent about $75 billion
in taxpayers' money on restructuring and recapitalization, have
yet to prove its ability to reinvigorate the national economy.
The government announced that IBRA had accomplished its
mission. For some, it certainly has. IBRA cleared many former
bank owners of criminal charges, despite their violation of
banking regulations prior to the crisis and their alleged
misappropriation of bailout funds. For many others, it has not.
There are still 1,361 unsolved legal cases, the majority of which
center on asset disputes. The total value of the cases is Rp 25
trillion, and they involve 447 debtors. Taxpayers at large have
been left with the burden of paying for the lost 72 percent for
many years to come. Economist Chatib Basri from the University of
Indonesia aptly described IBRA as "a good example of
institutional failure".
Clearly, IBRA's mission has not been accomplished. It should
be held accountable to the public.
From the very beginning, the activities of the Indonesian Bank
Restructuring Agency (IBRA) did not reflect its prestigious name.
The government established the agency in early February 1998, at
the insistence of the International Monetary Fund, as one of the
most important instruments to get Indonesia out of the
unprecedented economic crisis that crippled the whole region at
the time.
However, while similar agencies in other crisis countries like
Thailand, Malaysia and Korea immediately launched strategic
measures and steps to reform their banking establishments,
Indonesia dragged its feet. IBRA did not begin its operations
until the government issued a special decree more than a year
later, on February 27, 1999.
The formal name of the agency in Bahasa Indonesia, Badan
Penyehatan Perbankan Nasional, indicated its main mission.
Penyehatan literally means "action to make healthy". The agency
was expected to heal the desperately ailing banking establishment
of Indonesia, so that it could function normally to reinvigorate
the national economy.
The government dumped 71 financially distressed banks onto
IBRA. The agency also took over 372,930 bad loans worth more than
Rp 340.72 trillion (US$40 billion) and almost Rp 360 trillion in
other forms of distressed assets, which later turned out to be
inadequately backed by legal documentation and worth much less
than their reported value.
It automatically became the most powerful economic
organization in the country, managing assets worth more than
US$75 billion taken from closed and nationalized banks and
controlling the largest financial institutions in the country.
Its authority was unsurpassed in the history of the republic,
including extrajudicial power to foreclose on the assets of
debtors and to file civil lawsuits and bankruptcy petitions
against debtors.
It was not surprising that the agency was drawn into a
notorious imbroglio, in which vested-interest groups and
incessant political meddling by senior officials confusingly
intermingled with politically appointed agency officers.
Controversy, intense public scrutiny and fierce criticism became
its daily diet. It is no big surprise, then, that the agency had
to endure seven successive chairmen during its five years of
operation.
The end result is self-evident, especially when compared with
that in other previously distressed economies.
Similar authorities in Thailand, Malaysia and Korea completed
their task a couple of years ago, each with commendable
performance, including a relatively higher recovery rate in their
asset disposal programs, and a much stronger banking
establishment. All three countries have been on an economic
rebound for the last couple of years, as reflected in their
higher economic growth rates.
IBRA formally ceased operations last week, much later than in
Thailand, Malaysia and Korea. Its achievement in asset disposal
was lower, averaging only 28 percent, compared with more than 35
percent in Thailand, 29 percent in Malaysia and almost 40 percent
in Korea. The national banks, which have spent about $75 billion
in taxpayers' money on restructuring and recapitalization, have
yet to prove its ability to reinvigorate the national economy.
The government announced that IBRA had accomplished its
mission. For some, it certainly has. IBRA cleared many former
bank owners of criminal charges, despite their violation of
banking regulations prior to the crisis and their alleged
misappropriation of bailout funds. For many others, it has not.
There are still 1,361 unsolved legal cases, the majority of which
center on asset disputes. The total value of the cases is Rp 25
trillion, and they involve 447 debtors. Taxpayers at large have
been left with the burden of paying for the lost 72 percent for
many years to come. Economist Chatib Basri from the University of
Indonesia aptly described IBRA as "a good example of
institutional failure".
Clearly, IBRA's mission has not been accomplished. It should
be held accountable to the public.