MSAA: A tough nut to crack after four years
Berni K. Moestafa, The Jakarta Post, Jakarta
The plan was debatable from the onset: To whitewash the crime if one returned the abused money. That was the idea behind a 1998 deal with five former bankers to recoup more than Rp 96.53 trillion (about US$10.7 billion), which they had misused.
Since then, the Master of Settlement and Acquisition Agreement (MSAA) has survived four years of recurring criticism from virtually all sides -- except from the ex-bankers who defended it.
Law experts denounced the MSAA as legally void, bank analysts viewed it as unrealistic, politicians said it was unfair and government officials voiced their own doubts over the agreement.
All to no avail. The MSAA expires this year, with just about one-third of the misused money recovered and no prosecution in sight.
Signed in Nov. 1998, the MSAA lies at the heart of the government's problem regarding recalcitrant debtors, whose crime is growing every year by trillions of rupiah in the form of interest payments the government must pay.
The ex-bankers are some of the country's most influential business tycoons. Leading the pack is Bank Central Asia's (BCA) Salim Group, Indonesia's largest conglomerate, followed by the now defunct Bank Dagang Negara Indonesia (BDNI), formerly owned by Sjamsul Nursalim.
Others are Bank Umum Nasional (BUN), co-owned by timber tycoon and golfing buddy of former president Soeharto Mohamad "Bob" Hasan; Bank Surya, formerly owned by Soeharto's cousin Sudwikatmono and Bank Risjad Salim, once owned by Ibrahim Risjad.
When the economic crisis struck in 1997, their banks were at the epicenter. The crisis devastated mainly companies they owned and to which these banks had channeled most of their loans in a violation of bank regulations.
Bank Indonesia (BI) injected some Rp 144 trillion in liquidity support loans to help the banking sector cope with massive withdrawals from panicky depositors in early 1998.
The five banks accounted for the biggest share, at Rp 96.53 trillion.
Although the owners could face criminal charges for their inter-group lending it was not immediately known that they had also abused most of the liquidity support. The money was used to help affiliated firms, invest in new projects and also to speculate against the rupiah.
As BI cannot loan money, the government had to inject it with bonds to replace the liquidity support loans.
They are part of the total Rp 630 trillion in government bonds issued under what is now said to be one of the world's costliest bank bailout programs.
Still, the government closed down seven ailing banks in April 1998. In August that year it closed three more, among them BDNI, and nationalized four others, including BCA. All had received BI's liquidity support, amounting to more than 500 percent of their capital. The Indonesian Bank Restructuring Agency (IBRA) took over these banks.
Former owners were initially told by the government to repay the liquidity support by Sept. 21, 1998. However, they missed the deadline and instead offered their assets to the government to sell.
IBRA accepted the proposal but analysts immediately raised the alarm, calling it an early indication of the government's failure to effectively recoup the massive loans.
Bambang Subianto, who was the finance minister at that time, admitted: "It would have been easier for us if it were in cash, because if it were in the form of assets we would have had to revalue them and if the assets were in the form of companies the revaluation would have been even more difficult."
In October, two weeks after the first deadline, then president B.J. Habibie decided to extend the payment period by one year, but still demanding a cash settlement.
This deadline was again scuttled following the International Monetary Fund's (IMF's) call for more "flexibility", according to foreign news reports.
In a letter to Habibie, IMF Asia Pacific Director Hubert Neiss agreed that the repayment period "should be as short as possible" but warned, "if all assets are dumped in a fire sale under currently depressed economic conditions, the return for the government would be very small."
On Nov. 2, Habibie said he wanted ex-bankers to pay at least 30 percent of their debts in cash within one year. It marked the last proposal by the government before, eight days later, the MSAA took hold of the loan recovery attempt.
Under the MSAA, the ex-bankers had to surrender assets, which would be sold to cover their debts. A release and discharge clause freed them from liability to possible prosecution upon settling their debts.
The deal also called for the establishment of holding companies to manage and sell the assets. "If the sale of assets fails to meet targets due to carelessness on the part of the holding company then IBRA will promptly take the necessary measures to correct this," Bambang said.
It remains unclear as to who exactly designed the MSAA. IMF- appointed foreign consultants were reportedly involved as were legal consultants of the ex-bankers. But neither confirmed any of this.
The government itself appeared cautious over the deal. In 1999, then coordinating minister for the economy, finance and industry Kwik Kian Gie noted the agreement would result in huge losses to the state because the assets pledged were insufficient to cover the debts.
His successor, Rizal Ramli, voiced similar concern the following year, and it prompted the government to seek a "consensus" with the House of Representatives.
Following this, the government demanded ex-bankers pledge additional assets to cover a likely shortfall in their value.
Rizal said the Salim Group, for instance, owed some Rp 53 trillion but surrendered assets that turned out to be worth only Rp 20 trillion.
The move was enough to get Salim to inject again some of his assets. But criticism gravitated back to the MSAA, which did not require the group to pledge more assets every time its proceeds fell short.
An independent legal review ordered by Rizal found the MSAA of Salim as unfair and void.
Law firm Tumbuan and Pane pointed that IBRA had practically no management control over its assets, such that the debtor was the most responsible party for any decline in asset value.
It also questioned why the assets were managed by a holding company owned by Salim and IBRA, calling this a "debt repayment of the shareholders (Salim) as a debtor to itself."
The law firm added that the release and discharge clause was only binding upon IBRA, meaning outside parties, like the Attorney General's Office, could still prosecute Salim.
Despite the findings, no attempt was made to revise the MSAA.
In August 2000, the Supreme Audit Agency (BPK) revealed that nearly all of the liquidity support had been abused and cited that the potential loss amounted to Rp 138 trillion. But, as BPK's findings renewed public criticism against the former bankers, the MSAA was left untouched.
That changed earlier this year when IBRA proposed to revise the controversial agreement. With the MSAA deadline looming, IBRA, however, offered instead an even more lenient version of the deal.
The proposal, covering also two other types under the ex- bankers debt settlement program, extended the payment period by up to 10 years and effectively lowered the interest rates.
After the plan was leaked to the media, a wave of public criticism buried the proposal but at the same it also led the government to decide to keep the MSAA as it was.
As the deadline has now expired, IBRA has begun recommending the ex-bankers be released and discharged.
Some analysts and politicians voiced protest again but in the four years that the MSAA existed it has effectively defied public pressure to change.
The government furthermore insisted it must go ahead with the MSAA to ensure "legal certainty" for the debtors.