Will RI see a revival of cronyism?

Will RI see a revival of cronyism?

By Simon Montlake

JAKARTA: Once they get their feet under the table, President
Megawati Soekarnoputri's new economic team will be grappling with
many problems left unsolved by the old one.

Among the top priorities will be to balance the 2001 Budget
through a combination of spending cuts and revenue-boosting
measures. A solid budget should help convince the International
Monetary Fund (IMF) to start lending to Indonesia again.

So, how can the government boost revenues and avoid a budget
blowout? One surefire way is to sell assets surrendered in 1998
by indebted bank owners to the Indonesian Bank Restructuring
Agency (IBRA).

In the first half of the year, IBRA collected Rp11.25 trillion
(S$2.1 billion) from asset sales and debt repayments. Still, it
needs to ramp up its disposal program in the coming months if it
is to reach its year-end target of Rp27 trillion.

This may sound like an opportunity for foreign investors
hoping to snap up Indonesian assets at bargain prices. But think
again.

Many politicians are suspicious of foreigners sniffing around
the carcass of the shattered banking system. In particular,
lawmakers are quick to decry any hint of a "fire-sale" of
Indonesian assets, saying the government must wait to get the
right price.

Analysts say Megawati is sympathetic to these nationalist
arguments.

Of course, it is easy to hold out for a higher price when the
market is strong and investors are knocking loudly on your door.
Indonesia is not in that position, though.

However, the alternative to a "fire-sale" may be equally
unpalatable. If foreigners won't pay a fair price for IBRA's
assets, who will? The answer is the same crony conglomerates that
surrendered the assets to it in the first place.

Unlike foreign investors peering into the darkness of
Indonesian accounts, the cronies know exactly how much profit
they can wring from these companies. They also know how to play
the political game in Jakarta and skirt the rules.

Though their fortunes took a major hit, many conglomerates
managed to survive both the fall of president Soeharto and the
financial crisis. Now they are back on the warpath.

Salim Group, whose founder Liem Sioe Liong ranked among
Soeharto's top cronies, is stalking IBRA in a bid to rebuild its
business empire. Since last year, it has quietly taken back
ownership of some of its former companies from IBRA, including
Singapore-listed food company QAF and two packaging units.

Caretaker economics chief Rizal Ramli banned Salim and two
other indebted bank owners from buying back collateral from IBRA
until their debts were settled. But the use of proxies and
offshore funds gives the conglomerates plenty of room to wriggle.
And IBRA knows it must press ahead with the sale of ex-Salim
companies to meet its target.

Not all the Salim assets have been sold back to the group or
its allies. Malaysia's Kumpulan Guthrie agreed to buy 200,000 ha
of former Salim oil-palm plantations. A 40 percent stake in
carmaker Astra was sold in March last year to a consortium led by
Cycle & Carriage.

But last month's botched sale of Bank Central Asia (BCA), the
country's largest, illustrated the controversy within IBRA over
the return of Salim and the cronies.

Formerly an integral part of Salim Group, BCA was nationalized
in 1998 after bank runs left it insolvent. IBRA has already sold
shares in BCA to the public and was looking for a strategic buyer
to take a 30 percent stake worth around US$140 million (S$252
million).

Foreign banks such as Citibank and ABN-Amro shied away from
the sale. IBRA was left with only two final bidders: US fund
Newbridge Capital and Indonesian Recovery Company, a joint
venture between a Hongkong fund and Indonesia's Bhakti Investama.

Unexpectedly, IBRA rejected both bids and called for a re-
tender, saying it wanted to negotiate a better deal and preferred
to sell to a strategic partner, not an investment fund. Insiders
say the real reason for the delay is that Indonesian Recovery
Company is suspected to be a front for Anthony Salim, the group's
president, to regain BCA.

The presence of Bhakti Investama, which has in the past led
successful bids for other ex-Salim assets, raised eyebrows in
Jakarta, although Bhakti has denied having ties to Salim.

Officials at IBRA are well aware of Salim's ambitions to take
back its companies. Bidders for BCA were told they could not sell
their stakes back to Salim for the first two years.

Assuming that IBRA can't find bona fide companies willing to
buy into BCA, Megawati's government must ask itself whether it
wants to hold out against Salim. After all, if it has the money
and agrees to pay a fair price, why refuse?

But such a policy risks a popular backlash against the
government, and could leave a gaping hole in its finances down
the line.

Another problem with selling assets back to Soeharto's cronies
is financial.

As a result of the collapse of BCA, Salim owes the government
Rp53 trillion. The assets given to IBRA were pledged in 1998 as
collateral to repay this amount. But the valuation of those
assets by US investment bank Lehman Brothers went seriously awry.

Government officials later conceded that the assets would
probably fetch only Rp20 trillion, leaving a shortfall of 33
trillion.

In the case of Sjamsul Nursalim, owner of the Gajah Tunggal
group, IBRA has yet to sell a single asset to settle his Rp28.5-
trillion bill.

Dr Rizal last year tried unsuccessfully to force Salim,
Nursalim and Bob Hasan to hand over more assets to cover their
debts. Lawyers argued that the tycoons had signed legally binding
payback agreements with the government in 1998 and are not
obliged to surrender more companies.

It remains unclear whether they will be forced to make up this
shortfall.

Debt-ridden Indonesia needs desperately to recoup more than
US$60 billion spent on bailing out the banks and can't afford to
let the cronies off the hook.

All of which puts Megawati's team into a tight political
corner when it comes to pushing ahead with IBRA asset sales.

The writer, a business journalist based in Jakarta,
contributes articles regularly to The Straits Times on Indonesian
economic issues and developments.

-- The Strait Times/Asia News Network