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Indonesian textile giant's
woes
By 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.
(Copyright 2003 Asia Times Online Co, Ltd. All
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