Jay Solomon, Jakarta – President B.J. Habibie's plan to quickly sell off up to $15 billion in assets that debt-hit business groups must transfer to the government to repay loans has alarmed the International Monetary Fund, which has privately warned Jakarta the plan could damage the economy.

The Indonesian government is hashing out the terms under which banks will repay credits extended to them by the government earlier this year. Last month, the country's largest and third-largest private banks – PT Bank Central Asia of the Salim Group and PT Bank Dagang Negara Indonesia of the Gajah Tunggal Group – agreed with the Indonesian Bank Restructuring Agency to hand over billions of dollars of shares in about 120 companies. But those two agreements haven't been endorsed by Mr. Habibie, who said after they were signed by IBRA that the groups should pay back the credits in cash within one year rather than transfer shares to IBRA.

Bankers following the negotiations over repaying the credits – a key part of rebuilding Indonesia's ravaged banking system – say Mr. Habibie is being lobbied by opposing interests on how much repayment to insist on how quickly. The president is under pressure to quickly recover for the government as much badly needed cash as possible. But, the bankers say, it's unrealistic to insist that cash-strapped groups repay within a year. And should the government take over assets then seek to sell them quickly, they add, it may be forced to accept low prices.

Need for 'flexibility'

In an Oct. 18 letter to Mr. Habibie, the IMF's Asia-Pacific director Hubert Neiss wrote that there's a need for "flexibility" over the length of the repayment period given the banks. While acknowledging that the repayment period "should be as short as possible," he wrote that "if all assets were dumped in a 'fire sale' under presently depressed economic conditions, the return to the government would be very small." Mr. Neiss noted that this is why the government's own privatization program has been scaled back.

In the letter, a copy of which was obtained by The Asian Wall Street Journal, Mr. Neiss also said that a quick sale of many assets "could cause serious disruptions in the management of the companies sold, with undesirable effects on the economy."

Bankers following the IBRA negotiations say that Mr. Habibie, after getting input from Mr. Neiss, has backed away from insisting that the central-bank injections be paid back in cash within one year. But they say the president is seeking to secure a commitment from Salim, Gajah Tunggal and other groups to pay a certain percentage of the total within a year and then follow a fixed schedule under which the balance is paid from asset sales in following years. The bankers say the Salim Group, which has declined to comment, on Monday presented a divestment plan to IBRA. The IMF, in its latest agreement with Indonesia signed Oct. 19, said the first two agreements should be finalized by Thursday.

'Narrowing' gap?

"There's still a gap between what Habibie wants and what Salim and the other groups say they can do," a banker said. "But the gap seems to be narrowing."

Frans Seda, an economic adviser to Mr. Habibie, said he is optimistic that the asset-sale issue will be resolved, adding that the direct communication between Mr. Neiss and Mr. Habibie is a positive means of achieving reforms. While he said that Mr. Habibie would like to get the cash within a year, Mr. Seda added that the president "remains open to proposals" offered by the IMF, IBRA and bankers.

The IMF's letter didn't touch on what many Indonesians think is a subtext to the asset sell-off plan: a wholesale redistribution of corporate power. Nationalist politicians have openly called for a large chunk of IBRA's assets to be transferred to the Ministry of Cooperatives. The ministry – which represents some 30 million members of local cooperatives and small businesses – says it would then be able to redistribute the assets in a bid to diminish Indonesia's wealth gap and alleviate social tensions.

The Cooperatives Ministry's director general, Deswandhy Agusman, says he'd like to see at least 20% of IBRA's assets transferred into his ministry. Already, the ministry has been trying on behalf of local cooperatives to gain control of the country's rice and cooking-oil distribution networks, formerly in the hands of large conglomerates or the government itself.

"Wealth should be distributed to the people," Mr. Deswandhy says. Earlier, the forestry and plantation minister said private forestry and plantation companies in Indonesia must allocate a 20% stake to the cooperatives, although legislation hasn't been drafted.

Fears of eroded value

Critics of the Cooperatives Ministry cite fears that companies will erode in value under its care and that their management will lack transparency.

"The cooperatives don't have the management" to handle these companies, says economist Kwik Kian Gie, an aide to opposition leader Megawati Sukarnoputri. Mr. Deswandhy counters that "professional management" would be brought in to manage the assets. He envisions the assets being auctioned by IBRA to foreign investors, with the winners being those bidders who offer the cooperatives the largest stakes, among other criteria.

IBRA has sought to defuse nationalist pressures by insisting on an "Indonesia First" policy in any asset sales to foreigners. Among the requirements for foreign investors: retain all Indonesian employees for at least two years; offer employee ownership and incentive programs; contribute to Indonesian enterprises; and comply with U.S. government environmental standards.

But in combination with Mr. Habibie's wish to speed asset sales, the nationalist sentiment has raised fears of a central plan for reallocating wealth using the IBRA assets from ethnic-Chinese businessmen to indigenous ones. Mr. Habibie is under pressure to damp racial tensions and "do something for the cooperatives," says Mr. Seda, the president's adviser. But at the same time, he adds, "We don't want to give the impression to foreign investors that assets are being nationalized."

Pooling assets

IBRA officials say they worry that the attention focused on the asset sales could derail their plans for unloading the assets. They are trying to realize more cash by pooling assets – such as plantation and automotive interests – or by offering securities, such as bonds, that repay investors through the assets' cash flow. "What's important is that we realize cash as quickly as possible," an IBRA adviser says.

Plans for reselling shares of Indonesia's largest auto producer, PT Astra International, provide an example of the pooling process IBRA intends to follow, the IBRA adviser says. Three separate businessmen are set to cede their Astra shares, which together amount to more than 20% of the company's shares, to IBRA as a repayment for government loans. To avoid a sudden dumping of these shares into the market, IBRA will combine the stakes and aim to sell them to strategic investors.

IBRA has also made progress in recovering outstanding loans made to two Indonesian tycoons, Mohamad Hasan and Usman Admadjaja, the adviser says. Mr. Hasan, a long-time golfing partner of former President Suharto, will cede most of his timber concessions to IBRA as repayment for loans made to his PT Bank Umum Nasional, the adviser says, while Mr. Admadjaja will transfer large tract of Jakarta property to cover loans made to PT Bank Danamon Indonesia.