Gary LaMoshi, Denpasar – President Megawati Sukarnoputri herself closed the book on the Indonesian Bank Restructuring Agency last Friday, thanking IBRA officials for their work. According to most observers and by virtually every measure, it was not a job well done.
Founded in 1998, the agency received assets from troubled banks and indebted bankers valued at Rp650 trillion (US$77 billion), earmarked for sale to recover the cost of the government's banking bailout. Through asset sales, IBRA raised just Rp168 trillion; it characterized the massive writeoff – nearly US$20 billion – as "the cost of the crisis" and has been roundly criticized for it. In fact, IBRA has been blamed for just about everything wrong in Indonesia except traffic in Jakarta and bird flu.
From a strictly financial viewpoint, IBRA's asset-sales performance was lousy, managing a recovery rate of just over 25 percent. Some collection agencies boast returns nearly that high on unsecured loans or seized assets from bankrupt debtors. In the latter case, the creditor is scooping up whatever it can find and hoping it will sell. IBRA gathered its assets more selectively, through negotiation with debtors facing potential imprisonment.
In theory, IBRA should have been able to drive harder bargains to receive properties that would fetch prices closer to what the government was owed. But it didn't. That indicates incompetence in valuation, in sales, in interim management of assets, or in all three areas. Legislators have investigated IBRA for and accused its officials of being overpaid (top IBRA executive salaries were four times lawmakers' pay) but not incompetent. The agency is also undergoing an audit.
Too fast
Price wasn't the sole complaint about IBRA asset sales. Some accused the agency of selling banks and other companies too fast, more concerned with plugging the government's budget deficit than getting the best prices or finding the right investors. In some cases, debtors reportedly managed to regain control of the assets they'd pledged to IBRA at bargain prices. In other words, a tycoon who gave property to IBRA to pay off $2 million in debt allegedly was able to buy it back from the agency, through third parties, for $1 million or less.
Sales of banks to overseas investors also drew fire. Nationalists complained about the financial system falling to the clutches of foreign interests. They failed to acknowledge it was Indonesian bankers, not foreigners, who looted the government's banking-support funds to the tune of $17 billion. They also never explained where IBRA might find clean, independent domestic investors (bankers who sank the system were rightly barred from buying back in) with the funds to play in this league.
Others, most notably former economics minister Rizal Ramli, criticized IBRA for seeking strategic investors to exercise dominant influence over newly privatized banks. Ramli fears that this controlling/majority shareholder ownership model could set the stage for the same kinds of poor governance and business practices that led the banks to bankruptcy. He favors the US model of more diverse ownership that presumably pressures management to satisfy a variety of constituencies and interests instead of just one. It's an interesting theoretical point. Unfortunately, United States corporate scandals undermine that case. Even without those black marks, Ramli's prescription ignores the desperately needed management expertise and global best practices that so-called strategic investors bring to the sector.
Too slow
Critics also charged that IBRA didn't sell assets fast enough. The offering of Bank Central Asia, the leading retail bank, began in 2000 and unfolded as a two-year drama before a controlling stake was sold to a US investment-fund consortium for $540 million. The agency closed its doors with Rp15.1 trillion in unsold assets (book value Rp174 trillion), including Bank Permata, formed by the merger of five banks.
The Bank Permata sale was complicated by a spat with the attorney general's office over Rp456.5 billion recovered from the Bank Bali scandal (see Indonesia: IBRA prepares to bow out, January 16). That dispute touches the heart of IBRA's biggest failure: its name to the contrary, IBRA has left the banking industry largely unrestructured. Although some genuine changes have taken place, the system remains unreformed and still subject to abuses by corrupt employees and politicians who show even a whiff of imagination.
Those charges are undoubtedly true. (It's worth noting, though, that banks still under state control, not those privatized by IBRA, were involved in the latest scandals.) Blaming IBRA, however, misses the point.
Too soon
From its birth in 1998 under pressure from the World Bank and the International Monetary Fund, IBRA was a stepchild of Indonesia's governing class. A revolving door for three chairmen during its first year underscored the idea that IBRA was not to be taken seriously.
Since then, IBRA has provided politicians with a convenient scapegoat for all that's been wrong with the banking system, debt collection from corrupt bankers and sales of seized assets, and a distraction from genuine reform to eliminate political and economic corruption that converged in the sector. Not a drop of political will has been expended to solve those problems, and banks still largely don't fulfill their critical role in aiding economic growth.
Six years later, the pressure for reform has passed – in Indonesia, that pressure still comes only from outside the political system, from either grassroots protesters or foreign institutions – and the corruption continues. Ironically, Mohammed "Bob" Hassan, the only tycoon sentenced to jail for corruption, was released from prison a few days before IBRA closed. It's time to declare victory and end the war. As was the case with US President George W Bush's flight-suit speech in front of the "Mission Accomplished" banner, the war for banking reform in Indonesia is far from over. Expect casualties to continue.