Tue, 09 Nov 1999

Strengthening IBRA

The government demonstrated its full understanding of the economic problems facing this country when it acted quickly and firmly last week to dispel rumors surrounding an impending replacement of Glenn Yusuf, the chairman of the Indonesian Bank Restructuring Agency (IBRA). Coordinating Minister of Finance, Trade and Industry Kwik Kian Gie asserted there were no plans to replace the IBRA chief. Kwik said the rumors had greatly demoralized the agency to the detriment of the bank restructuring program.

Indeed, letting the rumors abound any longer could cripple the agency, already demoralized since the disclosure of the Bank Bali scandal in late July, and could derail the whole economic reform. An exaggeration?

Just look at the following facts: IBRA controls about Rp 600 trillion (US$88 billion) in assets (as large as 60 percent of the country's nominal gross domestic product) taken over from nationalized and closed banks, manages all state banks and all major private banks, which together account for over 80 percent of the banking industry's assets. The assets the agency manages or indirectly controls encompass a wide array of businesses covering almost all kinds of upstream and downstream manufactures, properties and agrobusinesses such as shrimp farming. You name it, IBRA has it.

IBRA is clearly the largest and most powerful holding company and holds the key to bank and corporate debt restructuring which in turn is the key prerequisite to economic recovery. The agency is empowered to review, cancel, terminate or change contracts entered into by banks under its management with third parties which are deemed to have inflicted losses on the government. IBRA is also authorized to seize the assets of debtors without court proceedings even if the assets have been pledged to other parties under other contracts. In short, as some analysts say, IBRA can essentially play God with Indonesia's economy.

However, it is precisely because of its huge assets and sweeping power that IBRA, a unit of the finance ministry, has constantly become the target of vested interest groups bent in dominating the country's economy. Since its establishment in late January, 1998, the same time as the launch of the government guarantee scheme for bank deposits and claims, IBRA has had three chairmen.

When close aides and associates of then president B.J. Habibie wanted to seek funds early this year to bankroll Habibie's presidential bid, they selected IBRA as their main target.

The PricewaterhouseCoopers (PwC) audit on the Bank Bali scandal chronicled how then minister for state enterprises Tanri Abeng, who is also heavily implicated in the affair, tried hard to have the assets transferred from IBRA to his ministry. The auditor also revealed how then chairman of the Supreme Advisory Council A.A. Baramuli, who was a close associate of former president Habibie, went all out to lobby then president Habibie to replace Glenn with Pande Lubis, known as Baramuli's henchman. But as the audit eventually revealed, Lubis, formerly one of Glenn's deputies, is one of two IBRA executives heavily implicated in the affair.

The latest rumors about Glenn's replacement were fueled by signs that factions within President Abdurrahman Wahid's government were reportedly fighting for the reins of IBRA. Another twist in the rumors said that U.S. Ambassador Robert Gelbard allegedly intervened to defend Glenn for the sake of American investor interests.

A shakeup now at the top post at IBRA would be greatly detrimental to its ability to execute its daunting tasks -- selling assets at their highest value to raise revenue for the state budget and restructuring the banking industry and domestic corporate debts. After all, the PwC audit absolved Glenn from any direct involvement in the scandal and most foreign investors have lauded Glenn's professionalism and competence in leading the agency despite the many instances of political intervention IBRA has encountered.

Rather than tinkering with its top management, the government should instead strengthen the agency by immediately replacing the two deputies implicated in the scandal with highly capable professionals of impeccable integrity and providing it with full autonomy to execute its tasks. Most importantly, though, IBRA should be subject to high standards of transparency and accountability.

Given the dire state of the government budget and the huge domestic and foreign debt service burdens, IBRA will surely face more uphill tasks. The revenue target the agency is tasked to raise next year may have to be more than twice as large as the Rp 17 trillion set for the current fiscal year. The agency also needs to speed up the domestic corporate debt restructuring process, otherwise the recapitalized banks will find it extremely difficult to find any viable businesses to finance, as most large and medium-scale companies are now being treated at the IBRA debt-restructuring hospital.