WB calls on Indonesia to expedite asset sales
WB calls on Indonesia to expedite asset sales
SINGAPORE (Dow Jones): The Indonesian government needs to
accelerate bank asset sales and state bank reforms to kick start
the economy, World Bank country director Mark Baird said on
Wednesday.
The governments needs to push the Indonesian Banking
Restructuring Agency, or IBRA, into quickly recovering or selling
nationalized bank assets, he said, even though critics may claim
the assets were sold to foreigners too fast and at fire-sale
prices.
"Banking restructuring to date in Indonesia has progressed
slowly, and to its credit, the government has made no mistakes...
but there is a danger that the government may end up with a large
state enterprise and not a very efficient one," Baird said.
He was at a Singapore conference on Indonesia in the aftermath
of June 7 parliamentary elections.
The government has to date closed 66 banks, taken over 11
others, and placed nine others in a recapitalization program. It
gave IBRA the task of dealing with the RP 230 trillion (US$33.8
billion) worth of assets and nonperforming loans.
James Castle, chairman of the Jakarta-based consultancy Castle
Group, said such a massive "de facto nationalization of assets"
hasn't been seen since 1949 in communist China.
Baird said it's important for IBRA to reintroduce financial
sector assets back into the market in order to get the economy
rolling again.
Castle said "the recycling of distressed assets" is key,
because "that's where the new money will come from," in terms of
a higher tax base, employment, investment and consumption.
"That's what will get Indonesia out of its current economic
crisis," he said.
Baird said there are early, clear signs of economic recovery
in Indonesia, with low inflation, a stronger rupiah and falling
interest rates buoying investor confidence.
"But an economic recovery is far from assured. The short-term
private unhedged external debt held by insolvent and closed
corporations is still there. That's why bank and corporate
restructuring is such a high priority," he said.
State banks - once restructured and recapitalized - can also
play a role in kick starting domestic consumption, but the reform
process is going slower than what has been seen with private
banks, he said.
Baird also said banking supervision is often the overlooked
piece in the bank restructuring puzzle.
"But it's an important one, in order to avoid similar
financial sector problems in the future," he said.
Castle said that despite the problems associated with the
economic crisis, Indonesia's economy hasn't stopped functioning.
He said major institutions have not ground to a halt, the
military has remained generally neutral through an ongoing
democratic election process, and political party tension is so
far relatively dormant, following the June 7 parliamentary
elections.
"Four months ago, to describe the conditions today would have
been considered on the far side of optimism," he said.