RI recovery: A distant mirage
The following is the first of two articles on economic recovery by Sidhesh Kaul, a regional commentator on political and economic issues based in Jakarta.
JAKARTA (JP): The statutory auditors for the Indonesian Bank Restructuring Agency (IBRA) recently released their audit results. The auditors, Hans Tuanakota & Mustofa (HTM), remarked in the report that the data relating to those banks under IBRA's supervision and control that were either frozen or taken over or simply recapitalized, did not fulfill the criteria of completeness, existence, accuracy, valuation, ownership and hence were classified as un-auditable.
This opinion from HTM raises doubts that either IBRA was not transparent enough with the auditors or that IBRA's execution of the bank's recapitalization, or closure, or take-over, as the case might be, was based on grounds that were questionable.
In any case the situation demands that a full audit -- a financial as well as a management audit -- be conducted so that the lapses can be identified and remedial corrections put in place. IBRA's credibility is vital to the recovery process and no stone should be left unturned in allaying concerns about IBRA's ability and competence as the country's biggest asset manager.
Although founded in 1998, IBRA got its first set of regulations in 1999 under Regulation No. 17/1999 which delineated the authority, duties and responsibilities of IBRA. This regulation was silent on accounting policies and it was only in March this year that IBRA acquired an accounting policy system (vide a decision letter in 2000 from the Minister of Finance).
The recent release of this accounting policy provokes thinking that the powers that seem to be playing a reactive role and that there are no cohesive guidelines on recovery -- only half hearted attempts at being perceived as meeting the requirements of the International Monetary Fund (IMF).
The lack of a policy-guided approach is hindering IBRA's efforts at seeking any legal remedies against recalcitrant and uncooperative debtors as evidenced by the recent string of failed attempts on the part of IBRA in the Indonesian courts.
Progress at IBRA has been painfully slow. As a recovery institution, IBRA manages about Rp 6 trillion in assets. These assets were inherited by IBRA through the liquidation, take-over and recapitalization of Indonesian banks.
Most of these are in the form of loans that have been collateralized at values that are unimaginably high when compared to recoverable or market value. This phenomenon has gone largely unnoticed by both the Indonesian government and the IMF.
During the boom times most Indonesian corporations sought funds for projects and machinery for expansion that were deliberately over valued. The difference between the actual costs of the projects and machinery lined the pockets of the owners who in turned greased the palms of the rent seekers within the banking and state apparatus.
Corporations double-financed their sales sometimes in active connivance with the state's export-import insurance body (ASEI). Some conglomerates that had their own banks within their corporate umbrella profited even more as they booked "extra" income simply from the timing of payments and on interest rate arbitrage (thanks to the Bank Indonesia's conveniently protective interest-rate spread).
In fact Indonesia, at one point during the boom years, was a country where corporations could borrow overseas and delay the deployment of borrowed capital towards productive use in the real sector, and instead re-direct it towards earning interest at local dollar rates (that were marginally higher than the overseas rates).
But alas, the tyranny of economics -- the magic of making money out of thin air trifled with the basic fact that earnings is a zero sum game and ill-gotten gains from those blatant practices today have become Indonesia's burden.
Transfer pricing was rampant with profits of corporations being booked overseas. Company surpluses were often deployed towards off-balance sheet derivatives that held the golden promise of gains that were far beyond the wildest expectations -- the gains once again lining the owner's pockets while the company had to be content with the fact that seed monies were returned, but very often even this did not happen.
The net result of this systematic bloodletting has been that most Indonesian corporations have productive assets that are far above market cost and generate revenues that are simply not enough to repay debts.
The treacherous partnership between hungry rent seekers within the state apparatus, backward-bending bankers and greedy owners has crippled Indonesia beyond the bounds of reasonable repair and has resulted in a massive betrayal of the ordinary Indonesian.