Strengthening IBRA

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.