Asia Times: Indonesia: Separating smokescreens from selloffs


	March 15, 2002	atimes.com

Southeast Asia

Indonesia: Separating smokescreens from selloffs
By Bill Guerin

JAKARTA - The numbers are juicy, indeed: US$500 million for a 51 percent majority stake in Indonesia's largest retail bank, with $10 billion in assets, churning out a tasty 28 percent return on equity and servicing 8 million retail accounts, the lion's share of the market, via 26,000 employees and 800 branches.

Given that PT Bank Central Asia (BCA) also operates in a country with 212 million inhabitants, there is little wonder that this is the issue of the moment here in Jakarta. BCA was, after all, 69.46 percent owned by Salim Group, whose founder Liem Sioe Liong (aka Sudono Salim) was one of ex-president Suharto's favorite ethnic-Chinese cronies, so much so that Liem doled out a cool 30 percent of his pride and joy in shares to two of Suharto's offspring - Sigit Harjojudanto and Siti Hardiyanti "Tutut" Rukmana.

Then came 1998 and the regional economy crisis. The riots in May of that year wiped out the bank's capital and Liem "parked" himself and his money in Singapore while son Anthony Salim took up the baton. In a race to protect the Salim family jewel, Anthony was the first to knock on the door of the Indonesian Bank Restructuring Agency (IBRA). Sure enough, the government, not sure if it dared to get stroppy with such a recent Suharto friend, nationalized BCA in August 1998 and rescued it from collapse with a capital injection of Rp28.5 trillion ($2.86 billion). IBRA was given 93 percent of the bank, with the remaining 7 percent still with the Salim family. Another Rp61 trillion worth of government bonds followed to clear the bank's incestuous loans to the Salim Group and Suharto-family-linked companies.

Then less than four weeks after President Megawati Sukarnoputri was catapulted to power with the ouster of Abdurrahman Wahid, Minister for State-Owned Enterprises Empowerment Laksamana Sukardi took time off from a meeting with an International Monetary Fund (IMF) team in Jakarta to announce that the government would sell 30 percent of one of its most valuable assets, Bank Central Asia.

Laksamana, trusted implicitly by Megawati, was appointed by her on August 9 and she took the opportunity to elevate him to the lofty position of IBRA supremo. Until then, it had been under jurisdiction of the Finance Ministry. In the bloody aftermath of the economic crisis of 1997, when hundreds of companies folded, IBRA took over billions of dollars in dodgy debts and Megawati clearly hoped Laksamana would be able to speed up the asset sales of companies under IBRA management.

BCA was, and remains, one of the healthiest companies under IBRA's control. But political influence, fears about a backdoor takeover by the previous owners the Salim Group, and an anti-selloff element among the 25,000-strong workforce, encouraged by the success of their comrades in the cement industry, have blighted the sale process.

IBRA now controls 60 percent of the company after selling off 22.5 percent in a limited public offering in 2000 and a further 10 percent in a secondary offering a month before Laksamana took the reins. Now, seven months on from his rise to power and only 24 hours after saying the sale would be finalized this week, he confirmed on Tuesday that the government had decided to "delay the announcement" of the would-be buyer of BCA, after rowdy protests by some 6,000 of the bank's employees on Monday. "We decided to delay it for a few days [from Tuesday] because of the worker protests," Laksamana said, but toed the line when adding, "But we will announce it in the near future."

Earlier protests involved only a few hundred BCA workers but Monday's message from a quarter of the workforce clearly sounded a note of alarm in the Presidential Palace. Ostensibly, the workers are only concerned that the new buyer would make substantial staff cuts. The head of the BCA National Workers Union, Muhammad Bilal Idris, says a sale would be certain to result in layoffs. "We want BCA to be left as it is now, owned by the government. What's the point of selling to foreigners when we'll just be turned into slaves?" he thundered.

This is a smokescreen. Powerful support from the corridors of power is the real influence behind the anti-selloff campaign.

People's Consultative Assembly Speaker Amien Rais has spoken out against the sale, and National Development Planning Minister Kwik Kian Gie has done a very public hatchet job on the folly of the proposed fire sale. He questions the wisdom of the government's policy and wants the selloff delayed and checked over by the Supreme Audit Board.

After a long and cumbersome bid process, two major would-be asset grabbers remained from a short list of eight - the United Kingdom's Standard Chartered Bank (StanChar), decidedly Anglo-Asian, and the dark horse, by comparison, the US hedge fund Farallon Capital. Both have passed Bank Indonesia's cumbersome fit-and-proper test but StanChart, unlike its US competitor, has so far made no promise that there will be no job cuts.

StanChart heads a consortium of partners that include the Singapore government and the massive UK insurance group Prudential. Farindo Holdings Ltd of Mauritius leads the Farallon consortium but its members include Alaerka Investment Ltd, which is, significantly, owned by shareholders of cigarette producer PT Djarum (majority owned by ethnic-Chinese tycoon Budi Hartono).

It's difficult to argue with Kwik's logic when he points out that a new owner would continue to be subsidized by the taxpayer to the tune of millions of dollars, though BCA's earnings rely on Bank Indonesia certificates (SBIs) and government bonds that were injected as part of the IBRA rescue package. Kwik reckons the SBIs and government bonds would generate income of up to Rp7 trillion in interest against an estimated Rp2.75 trillion the government will owe BCA this year to repay the recapitalization bonds. He is also suspicious of BCA's financial reports. The massive enterprise reported a net annual profit of only Rp2 trillion, which Kwik says does not reflect its maximum potential earnings.

Fine economist that he is, Kwik could have added that banks don't want bonds, they want liquid assets that they can lend to third parties. The bonds would need to be sold for cash to be used for loans. On the other hand, if the government were to take the bonds out of the BCA pool of assets they would have to close the bank down, as its value would be greatly reduced.

The workers are adamant they will strike if their bank is hived off to a foreign company, a threat that Laksamana met by saying on Monday: "We intend to communicate to the employees and then we will see how conditions develop." He also said, through an office spokesman, that there must be no job cuts or management changes after the sale.

"We fully understand the attachment that Indonesians and BCA employees have to BCA," StanChart's chief executive in Indonesia, Ray Ferguson, said in a press statement. "There will be no massive job cuts and no changes to employee benefits and pay," he promised, adding that there would be no branch closures, sweeping managerial restructuring or integration of BCA into StanChart.

For StanChart, its current pole position comes less than three years after another foray into the murky waters of the Indonesian banking sector failed miserably. It lost copious amounts of face - and money - when its 1999 bid for the privately owned Bank Bali, also widely respected here, ended in ignominious defeat amid a hodge-podge scenario of its own arrogance, widespread and nasty employee unrest, and a great deal of downright fraud. The whole issue was mired in a scandal over the alleged channeling of the bank's recapitalization funds into the former ruling Golkar party for a "Re-elect [president B J] Habibie" campaign that failed anyway.

Farallon, in what is said by some skeptics to be a tactical move, leaked that it had considered pulling out of the race because it feared the sale process was not fair or transparent.

There are reports this week that StanChart is also in trouble back home, with its chairman Patrick Gillam about to get a golden handshake a year before his contract ends. Its second Indonesian bid is seen as risky at best, and it remains to be seen whether it still has the stomach for a fight against nationalism some 8,000 miles away from the City of London.

Perhaps, though, the main loss to Indonesia this week is more intangible. The BCA divestment program is under the microscope. Foreign investors see these predictable shenanigans and wonder if Indonesia will ever get serious about attracting foreign investment to kick-start the economic recovery. There is a lot at stake. The privatization or asset-disposal program was meant to be a key catalyst for reform and with the public, and the student population, growing increasingly vocal about the total failure to get started on reform, this delay could be very serious indeed.

Laksamana's best efforts to hive off PT Semen Gresik, a cement manufacturer, collapsed dramatically against a wall of resistance in the Sumatran province of Padang (where the plant is located) backed by money and influence from Jakarta. The government had pledged to complete the sale in December but missed that deadline. If it goes ahead, the sale is expected to raise about $450 million and the IMF continues to wait and hover in the wings, mischievously delaying yet again approval of the latest installment in a three-year, $4.5 billion cash loan injection to semi-bankrupt Indonesia.

The IMF wants progress with this selloff, as well as on five other fundamental clauses in the last Letter of Intent.

Laksamana and IBRA chairman I Putu Gede Ary Suta have rarely seen eye-to-eye but another factor casting doubt on the next developments is the way this spat has recently become very public, not exactly instilling confidence in the ability of either man to overcome the multidimensional problems thrown up by the planned sale.

Last week, Laksamana appointed an outside board of four to review the sale process in the interest of transparency and fairness, a logical move to reduce criticisms of the lack of such. Ary Suta was not at all pleased and it ended up as a simple argument - who has the final authority and say on the choice of buyer? Most analysts believe that IBRA will have the final say, with a panel reviewing the decision before Megawati rubber-stamps it, but Laksamana stubbornly insists it is he who will make the final decision on the BCA sale.

There seems little doubt that Jakarta is determined to implement this "make-or-break" sale but if the process now grinds to a halt foreign investors across the board will be discouraged and the chances of moving on to other bank selloffs or initial public offerings will be remote and the other privatization programs would lose even more credibility.

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