Restructuring agency guarantees Indonesia’s financial stability
WHEN THE SOUTHEAST ASIAN FINANCIAL CRISIS OF 1997-98 THREATENED TO ENGULF INDONESIAN BANKS, IBRA HELPED SAVE THE DAY BY BAILING OUT UP TO 70% OF THE ENTITIES. THE STORM NOW WEATHERED, IBRA IS TO SELL OFF ITS $43 BILLION OF ASSETS TO HELP REBUILD A SOLID ECONOMY

COUNTING THE RUPIAHS The government is looking to privatize Indonesia’s four state banks.

Normal banking ground to a halt during the financial crisis that hit Indonesia in 1997-1998. Upwards of 70% of bank loans were estimated to be non-performing and the crisis left Indonesian banks in a perilous condition on a par with American banks at the height of the Great Depression. In response to the crisis, the Indonesian Bank Restructuring Agency (IBRA) was set up in 1998 and charged with three major tasks: finish overhauling Indonesia’s four state banks, along with the private ones it had taken over (in the wake of the crisis the market share of government controlled banks increased to 70%), clean up the corporate loans that it took off the banks’ balance sheets and sell its stockpile of industrial assets seized from bad debtors, which, according to Coordinating Minister of Economic Affairs Dr. Dorodjatun Kuntjoro-Jakti, include, among others, “insurance companies, banks, telecommunications companies, railways, seaports and airports.”

With the program of bank recapitalization now complete, Indonesian banking sector policy is turning to the challenge of restructuring the sector. Selling IBRA assets (estimated at some $43 billion) and restoring a strong private sector-led banking system is now the government’s top priority. Unfortunately, IBRA’S progress has been slowed by bureaucratic inefficiencies. Although the agency is supposed to wrap up its work by 2004, it had restructured only 30% of its non-performing loans and sold 8% of its total assets at end-2001. After a reshuffle last June, current former Chairman I Putu Ary Suta took over the reigns to become the agency’s sixth chairman in just four years. Mr. Ary Suta immediately gave notice of his intent to speed up progress at IBRA and reduce inefficiency. Since his appointment, the former chairman has taken measures to reduce staff and simplify bureaucratic procedures. He states, “before it took 14 signatures to approve something. Now it takes five. There is just no need to have that kind of desk mechanism anymore. As well, we now have a new rule where all documents coming in are responded to within 30 days. The fact is that things are getting better here. My job is to meet targets and my priority right now is to speed up the process of returning these industries and banks back to their natural habitat.”

Although there has been some public dissent against the sale of assets, the government remains firm in its intention to privatize the banking sector and return industry assets to private hands. Finance Minister Dr. Boediono responds, “Every policy in our program will touch upon areas of politics. This is always the case in a democracy. The public will continually watch every direction of policy as we seek to implement it. In some areas of the privatization program, there is discrepancy among the public, but in others, there is agreement. I think that we will be able to proceed as planned.”

Politics aside, it has become clear that accelerating IBRA’s asset recovery and debt restructuring are essential for reducing Indonesia’s public debt, reviving private investment flows, and securing the efficiency gains to promote stronger economic growth. Consequently, the government has set higher targets for 2002, including the acceleration of IBRA loan disposals, progress in the sale of IBRA’s bank holdings, and decisive action with respect to the chronic problems with non-cooperative bank owners. At the center of this strategy is the intention to privatize the four state banks and return banks under the control of IBRA to full private-ownership. The successful sale of majority stakes in Bank Central Asia (BCA) and Bank Niaga scheduled to take place this year will be key first steps in this regard.

From the outset, IBRA’s task was never going to be easy, but handled in a fully open and professional manner it is by no means impossible to complete on schedule, providing there is co-operation from other government departments. Mr. Ary Suta stresses the necessity for transparency and emphasizes the importance of cooperation among ministries in order to bring about clear and fast results. “Right now we start everything with openness. Everything is disclosed: no secrecy and no hanky-panky,” he explains. “The things I deem most important are leadership and coordination. IBRA cannot stand alone. If security is not conducive, then IBRA’s results will be poorer. We are as one and we have a united interest. When we go abroad, we must be able to say: ‘this is Indonesia’.”