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.