MAIN PAGE | EVENTS & PROGRAMS | 2001 | IGM | SPEECHES | EDWIN GERUNGAN
PACIFIC BASIN ECONOMIC COUNCIL
MAIN PAGE | EVENTS & PROGRAMS | 2001 | IGM | SPEECHES | EDWIN GERUNGAN
Regional Vitality in the 21st Century
April 6-10, 2001 — Tokyo, Japan
Mr. Edwin Gerungan
Mr. Chairman, ladies and gentlemen, good afternoon. Over the past three years, the Indonesian government has taken steps to cleaning up the bad debts as well as re-capitalizing the banking system. As you can see, the economic crisis, the currency crisis, started in Indonesia and was more severe than the neighboring countries. In Thailand as well as in Korea, because the Rupiah exchange rate dropped to 20 percent in effective exchange rates compared to Thai Baht and the Korean Won, less devaluation than the dollar Rupiah. And also, the interest rate at that time was the highest in Indonesia around 51 percent compared to lower rates in the neighboring countries. And also the non-performing loans was at the peak at around 48.6 percent and came down to around 18.8 percent in Indonesia. As a result of the massive bank runs and loan defaults forced closure a lot of the commercial banks in Indonesia. In 1997, we have 238 banks and it shrunk to around 151, around 40 percent of the total number of banks in Indonesia. 87 failed banks as well as merged banks, 49 of the banks were closed by IBRA and the rest were closed and merged by the government or the Ministry of Finance, about 20 banks are still under the management of IBRA. The total cost of the re-capitalization of the banking system in Indonesia is $645 trillion Rupiah, that's equivalent to around US$65 billion. And the re-capitalization of the state banks took about $270 trillion Rupiah and the rest is for the commercial, private banks. The non-performing loans peaked in 1998, 48.6 percent of the total loans declined to 18.8 percent, and the main reason for the decline is basically that all the non-performing loans were transferred from the commercial banks to IBRA. At the same time, the capital levels were around -40 percent in April 1999with the re-capitalization done by the government, the capital adequacy ratio moved up to around 4-8 percent in December 2000. The government established IBRA in 1998 for 5 years, the expiry date is around 2004 with the main objective is basically to restructure the bank, to close failed banks, re-capitalize banks, consolidate, restructure and sell divested banks and also for the loan restructuring as well as the shareholder asset settlement. Compared to the neighboring countries of similar institutions, IBRA has a total of $52trillion in assets excluding the equity from the banks re-capitalization compared to other countries and that represent about 41 percent of the GDP. The total assets that are under management of IBRA as mentioned before the loan portfolio is about $267 trillion, this is all the non-performing loans transferred from the commercial banking system. And of this $267 trillion, 50 percent of it is in US dollars denominated loans so you can imagine how difficult it is to restructure the loans because the Rupiah was at that time 2300 per US dollar is now 10,000. You need 4 times more Rupiah to pay the debt and also the Rupiah, the interest rates is also rising at the present moment. Basically in the debt restructuring, IBRA basically divides the task into corporate, commercial and retail. On the retail SME basically we sell those to the market, the commercial we outsource and the large corporate debts are basically restructured by IBRA. These are basically the results of the restructuring so far, total around 44.9 percent. The focus on the restructuring is the large debts to be restructured by IBRA and for 2001, basically we are also going to establish joint-venture AMCs inviting the foreign investors to restructure the loans and we hope that by doing this, the restructuring process will continue and will be faster. And also at the same time, we are also going to sell un-restructured to the banking system because the faster the risk assets are transferred to the banking system it's the better. At the moment, most of the non-performing loans were transferred to IBRA, the banking system assets are mainly in the government bonds up to sometimes 50-80 percent. The faster we can restructure loans or even sell the un-restructured loans to the banking system, the better it is for the banking system to lend and also for the companies to grow. As mentioned before, the former owners of the banks that violated the legal lending limit and lent most of their funds to their own companies had to settle those debts with the government. And in return, the government received assets or shares of companies that's worth about US$12 billion, and those assets are now being sold by the government through asset sales, refinancing IPO or strategic stake sale or placement into the market. This process continued because basically the government needs to get higher recovery from these asset sales to replace the bonds that have been placed with the banks. Basically this is the stage of the sales of the corporate equity where 8.8 percent are to be sold in 2001. Basically the management of the banking and after the re-capitalization of the banks, we have seen a growth in the loan, basically about 10-15 percent in 2000 and we hope the growth to be bigger in 2001. These are basically the trends of the recap banks under the management of IBRA. So to summarize the presentation, there is still a lot to be done by IBRA and the government of Indonesia because the non-performing loans from 18.8 percent, basically the target is to reduce it to around 5 percent by 2001. IBRA also has to accelerate the restructuring of the loans and sell the loans to the banks and continue to consolidate the banking system, we have about 11 banks at IBRA now and through mergers and sales that would drop to around 4 banks this year. As mentioned before, we continue to sell assets, those assets represent banks as well as multimedia companies that are in our portfolio. Thank you. |
![[ Regional Vitality in the 21st Century ]](../logo128.jpg){kind=logo}