Vincent Lingga, Jakarta – The Indonesian Bank Restructuring Agency (IBRA) seems not to be fully aware yet that credibility and accountability should be its basic capital in executing its primary task, which is disposing of the billions of dollars of distressed assets under its management.
Or is this agency, the most vital instrument for the economic crisis management, so fully controlled by corrupt officials that it is truly a den of thieves, as many have alleged? Almost all the major deals it has made since 2000 have been dogged by controversy, battered by allegations of collusion and corruption. This despite its supervision by an independent oversight committee, ombudsmen, an internal audit department and State Minister for State Enterprises Laksamana Sukardi, supposedly one of the Cabinet members with impeccable integrity.
IBRA's auction of Rp 135.4 trillion (US$15 billion) of bad loans last month, billed as the mammoth asset sale of the year, ended in another controversy, causing uproar in the mass media and forcing the government to set up a special task force to investigate allegations of conflicts of interest and corruption.
The auction process started in early June with steps to ensure a high standard of transparency. These steps included conducting an information campaign through investor forums and the IBRA website, and establishing clear-cut step-by-step procedures and legal safeguards to prohibit original debtors from taking part in the bidding.
The massive asset sale was warmly welcomed, as it was expected to achieve three strategic objectives: releasing corporate debts from the IBRA "hospital" to new creditors, allowing banks to expand their loan portfolios and reducing the government's domestic debt and its spending on the interest on bonds.
About 231 domestic and foreign investors submitted bids, resulting in Rp 81.6 trillion in bad loans being sold for Rp 23.1 trillion, or a recovery rate of 28.3 percent. This rate was not bad, compared to the 20 percent recovery rate achieved by the asset managers in South Korea and 27 percent in Thailand.
But suddenly, boom! Allegations of collusion and corruption erupted, and rumors began to fly of several IBRA officials buying luxury cars.
As it turned out, a shareholder and key executive of PT Anugra Cipta Investama, one of the biggest winning bidders, is Wicaksono Abadiman, a cousin of Mohammad Syahrial, deputy to the IBRA chairman in charge of asset management. Yet more damaging to the credibility and perceived fairness of the auction is the fact that Abadiman is a former president of state-owned PT Bahana Securities, which together with another state firm, Danareksa Sekuritas, had been a financial adviser to IBRA and was heavily involved in valuing distressed assets at IBRA, including a good portion of the bad loans entered into the auction.
Why is this seemingly small matter so damaging to the credibility of the auction process? Because information is the key for investors to assess the business prospects of debtors, and to set their bid prices accordingly. It is quite obvious, therefore, that asymmetrical information is quite a big disadvantage.
Anugra Cipta should not have been allowed to take part in the auction, not only because Abadiman is a cousin of Syahrial, one of the key decision-makers at IBRA, but primarily because he was virtually an insider who had been well informed of many of the distressed assets put on sale. State minister Laksamana set a good example of good governance in May by deciding not to appoint his elder brother as the new president of state-owned PT Garuda Indonesia, even though Samudra Sukardi was the most qualified candidate for that position, judging by his technical competence, his managerial record and the full support he received from the state company's employees.
But this time, he did not intervene to prevent a conflict of interest.
Possession of information was naturally a great advantage, because quite a large portion of the bad credits being auctioned had not yet been restructured. Investors would still have to restructure the dud loans they bought, a process that would require formidable negotiations with corporate debtors about new terms, repayment schedules and even some refinancing packages.
Anugra Cipta enjoyed another huge advantage because it allied itself with Bank Mandiri, the country's largest bank, which was set up in 1999 as the result of a merger of four state banks. These now defunct banks handed over Rp 178 trillion of about Rp 292 trillion in bad loans IBRA took over from closed, nationalized and state banks in 1998 and 1999.
True, there is no regulation that bans the relatives of IBRA officials from taking part in transactions with the agency. But if IBRA is truly serious about maintaining a high degree of credibility, developing good governance and high standards of business ethics, it should have prohibited the relatives of senior officials with decision-making authority and those with inside information from doing business with IBRA.
IBRA never seems willing to learn from its past mistakes, including the alleged collusion-ridden auction of Indomobil, the country's second largest automotive group, last December.
A two-month investigation by the Business Competition Supervisory Commission earlier this year pieced together solid evidence showing that the three final bidders in that auction – PT Alpha Sekuritas Indonesia, PT Bhakti Asset Management and PT Cipta Sarana Duta Perkasa – conspired to determine the winner of the tender.
The evidence clearly described how two bidders, Alpha and Cipta Sarana, shared information and knowledge for their bids. This conspiracy, the commission stated, was made possible because Pranata Hajadi was an investor in both Alpha and Cipta Sarana.
It is sad to note that except for Bank Mandiri, most of the 20 largest winning bidders of last month's auction are investment or securities companies, with little capital and not much experience in debt restructuring, let alone refinancing capability.
The strategic objectives of bad loan sales can only be achieved if most of the buyers are banks, capable of restructuring the debts and refinancing the corporate debtors to enable them to resume full-capacity operations.
Given its messy image, IBRA might learn a lesson from Indian Minister of Privatization Arun Shouri, who also faces constant criticism from fellow ministers, trade unions and parliamentarians anytime he disposes of a state company. Yet in less than two years, Shouri has succeeded in selling 22 state companies, raising $2.2 billion.
As part of his overriding attention to maintaining the integrity and credibility of every deal he makes, Shouri goes the extra mile. Shouri turns over all documents to the Indian auditor general (the equivalent of Indonesia's Supreme Audit Agency) the day after each sale, even though he is not legally required to do so.
IBRA may also be well-advised immediately to hand over all documents to the Supreme Audit Agency after each major transaction, to prevent controversy and to uncover early on any wrongdoing that may have occurred.