The instrument of crisis management

The instrument of crisis management

The Indonesian Bank Restructuring Agency has a vital role to
play to help fuel economic recovery through its loan
restructuring programs to restore thousands of businesses to
normal operations, and to sell thousands of operating companies
to raise funds to lessen the budget deficit.

However, with less than 15 months to the end of its five-year
mandate in February 2004, IBRA has yet to dispose of almost 50
percent of the Rp 650 trillion worth of bad loans and equity
shares it took over from closed and nationalized banks.

The recovery rate in its asset disposal program also has
mostly been lower than expected due to a combination of poor sale
management, corrupt transactions and inimical macroeconomic and
political conditions, which have steadily eroded the value of
assets IBRA holds.

IBRA's contribution to the state budget from the proceeds of
its asset sales will decline sharply next year because most of
the best assets (both in terms of financial prospects and legal
documentation) had been disposed of over the past three years.

The 2003 state budget, for example, stipulates only a net
revenue of Rp 12 trillion it expects from IBRA, compared to more
than Rp 42 trillion this year.

But IBRA's corporate debt restructuring is still key to
reinvigorating economic activities as companies that are hostage
to their bad debts will remain closed to credit lines and
therefore unable to raise production rates. This condition will
deprive banks of creditworthy borrowers to plow their excess
liquidity and will force them to rely mainly on the interest
revenues from their government bonds.

The sale of the distressed assets is also vital as only new,
credible investors will be able to reinvigorate these businesses
by bringing in better management and fresh capital.

The divestment of nationalized banks is equally crucial
because almost all the largest banks are now majority owned by
IBRA. As long as these banks remain under IBRA control, they will
remain fragile, unable to fully regain the market's confidence.

Accelerating the operational restructuring of these banks is
now more urgent as the government will begin phasing out its
blanket guarantees on bank deposits and claims in January.

The government, with full support and effective oversight from
the House, should enable IBRA to firmly exercise its mandate,
both accountably and transparently. --JP