Bill Guerin, Jakarta – Russian writer Fyodor Dostoyevsky said "there is no subject so old that something new cannot be said about it". And so it is with the long-running saga of Indonesia's serial crony conglomerates. Freeing the legacy of a huge corporate debt overhang by bailing out recalcitrant debtors continues to cost the country dearly.
The latest cry for help comes from textiles and engineering giant Texmaco, the Indonesian Bank Restructuring Agency's (IBRA's) biggest debtor. Texmaco has defaulted for the second time in four months on payments agreed under what was Indonesia's biggest-ever corporate debt workout two years ago.
A major scandal involving Texmaco was the first test case in former president Abdurrahman Wahid's new administration. Spanning, as it did, 15 months of his watch in 1999-2000, it is a prime example of how the battle against cronyism, collusion and corruption was lost in Indonesia from the outset. The current dilemma over what to do about Texmaco underscores how successive administrations have failed to make hard economic decisions, especially those affecting the well connected.
The story began just before the financial crisis hit the country in 1997, when Texmaco borrowed heavily to finance its expansion in textile-related engineering endeavors. With the rupiah's depreciation during the crisis, the company's debt, much of it in US dollars, ballooned.
The government then injected trillions of rupiah to keep the company afloat and IBRA, the largest creditor in Indonesia, took over Texmaco's debts, which totaled Rp29.09 trillion (US$3.4 billion at the current exchange rate) from several banks, mainly the state-run Bank Negara Indonesia (BNI).
By 2001 Texmaco still owed IBRA 17.3 trillion rupiah. The restructuring signed in May 2001 allowed IBRA monitors access only to the holding company, not to the productive units where all the cash was being generated.
Though Texmaco had pledged to hand over all its assets to a new holding company under IBRA, Marimutu Sinivasan, the charismatic founder of the group, retained control and the ability to call the shots. By April this year IBRA had to give Texmaco three months to improve its performance after it failed to honor a $25 million letter of credit due to BNI, which had lent the money to the holding company with IBRA's guarantee.
The letter of credit had been taken out by Texmaco's publicly listed textile company, PT Polysindo Perkasa, but in what is almost standard operating procedure for indebted Indonesian companies, the funds had been diverted into Texmaco's struggling engineering unit.
After an emergency meeting of IBRA, BNI, Texmaco and Finance Sector Policy Committee representatives, IBRA announced that it would pay the outstanding $29 million to BNI. IBRA, BNI and Texmaco then inked an agreement that they promised would improve Texmaco's overall performance so that it could pay its debts.
Control over cash flows was to be monitored by IBRA-watchers from the inside, and an escrow account would be opened to receive income from sales and control its use. IBRA agreed that Texmaco would get the letter of credit to avoid BNI calling in its $100 million debt and forcing a shutdown of the group's operations.
State-Owned Enterprises Minister Laksamana Sukardi, the de facto head of IBRA, wanted the bank to act as a bank and take firm action. "Every kind of loan involves risks and the ones who take on the risks are the banks," he said, though Sinivasan had successfully persuaded IBRA to take a different stance.
The results are plain to see. Texmaco missed an interest payment of Rp139 billion ($16.5 million) due last month on an exchangeable bond coupon, sparking the current crisis.
There is no love lost between Sinivasan, an Indonesian national of Indian origin, and Sukardi. in November 1999, Sukardi, who held the same state enterprises portfolio under then-president Abdurrahman Wahid, testified to the House of Representatives that former president Suharto and Texmaco had engaged in "high-level collusion and conspiracy".
"I am a businessman. I have around 45,000 employees to take care of. If I didn't have anything to do like Laksamana, then I might sue him," Sinivasan retorted.
In his dealings with Suharto, Sinivasan cleverly played on themes that would be music to the old man's ears, in the same way as the latter's protege, B J Habibie, had always been able to play the right tunes for his wild and grandiose plans for the country's embryo aircraft industry, now in danger of collapse (see Garuda Indonesia left to the wolves, August 29).
Writing to Suharto on December 29, 1997, Sinivasan reminded the president that Texmaco had given work to 40,000 employees, and had blessed the nation with petrochemical and heavy engineering plants. He asked Suharto to give Texmaco a special facility for 100 percent pre-shipment finance outside of the legal lending limits. Within two months a total of $754 million and Rp1.9 trillion of government money was bestowed on Texmaco in loans from BNI and another state bank, BRI, as instructed by the central bank, forced to obey instructions from Suharto.
The bulk of the money was used to repay the company's short-term debts to foreign lenders and not for pre-shipment finance to support exports, as requested in the letter to Suharto.
The scene had been set to symbolize the struggle between the country's future and its past – dealing firmly with Texmaco would represent a step forward, away from the corrupt legacy of Suharto's rule.
The response from several legislators to the exposure of a state bank being forced by a letter from Suharto to extend credit to the conglomerate was an ominous sign of the resistance ahead. Many argued that Texmaco should be seen as a "national asset". Like Jakarta's elite, they were fond of turning normal legal precepts on their head, demanding that those accused of any misdeeds were viewed as innocent until proven guilty. Sinivasan complained publicly that the public had a "wrong perception" of the facts in the case.
"Texmaco should be considered a national asset and is entitled to assistance in times of crisis," said one PDI-P legislator. It was a stance echoed by the chairman of House Commission IX, who concluded that "the Texmaco loans did not amount to preferential treatment because the facility was available to other export-oriented companies".
True, perhaps, but there rested the case for the defense. Continued failings of the legal system were drawing fire from the International Monetary Fund (IMF), which noted at the time that "a number of cases in both the commercial courts and the Supreme Court have been decided against creditors and in favor of large debtors on grounds that ... cannot be supported by the underlying law".
Moreover, the Fund said, "the widespread perception ... is that many of the controversial rulings have been the result of unlawful external influences on the court". It need not have worried about the Texmaco scandal. There was no attempt to bring the case to court. Wahid quickly kowtowed to the "national asset" swan song and the "hands off Texmaco" refrain from the parliament. The key argument was the social consequences posed if this "state asset" went belly-up, throwing thousands of Indonesians out of work.
Ingenious indeed, but far from true. Texmaco is not a state asset, although it could, of course, be taken over by the state. It is a private company, very successful in what it does, and continually claiming that its assets are worth more than its outstanding loans.
The saving grace for taxpayers was to be the Shareholders Obligation Resolution scheme, by which cooperative debtors could escape criminal prosecution for misuse of state funds, but at least the country would get some sort of return on its forced investment in these private individuals and their companies.
Unfortunately the majority of indebted tycoons, including Sinivasan, have paid little attention to it, preferring to lobby IBRA and seek support in the corridors of power to avoid the remote possibility of being taken to court.
IBRA has hinted that it might even take Texmaco over, lock, stock and barrel. It is difficult, however, to see what benefits this would bring. The agency, due to wind up early next year, needs to sell almost $5 billion of the country's strategic assets, but an earlier auction of Texmaco assets failed to reach the floor price, despite one bidder being backed by Malaysian Prime Minister Mahathir Mohamad's son Mirzan.
Texmaco's woes have reached out to other countries in the region. Bangkok Bank this year filed a bankruptcy suit against Polysindo Eka Perkasa, Texmaco's publicly listed textile company, over $473,500 of debt.
The Texmaco chairman, Sinivasan's younger brother Manimaren, died in an apparent suicide when jumping from a highrise hotel in Jakarta on August 5. Maniraman was previously a member of the "Habibie Success Team" that was tasked with raising funds and maneuvering for Habibie's re-election. He was the earlier Baligate scandal treasurer of Suharto's political machine Golkar, and had been summoned a week before his death by a parliamentary working committee probing a counter-trade deal between Jakarta and Moscow for Suhkoi fighter jets and Mi-35 helicopters.
Sinivisan, now 65, has successfully charmed three presidents – Suharto, Habibie and Wahid – but it looks as if he may have drawn a blank with the current president, Megawati Sukarnoputri. His dealings with IBRA have been characterized by secrecy, but he looks certain now to be forced out of any remaining vestige of control of his corporate empire.