The Indonesia-headquartered Center for International Forestry Research (CIFOR) claims that members of the Consultative Group on Indonesia (CGI) – which holds its interim meeting in Jakarta this week – are risking Indonesia’s forests by not paying enough attention to IBRA’s sale of forest assets to the Government-owned Bank Mandiri.
When the CGI met in February 2000, the Government of Indonesia agreed to close heavily indebted forestry companies under IBRA’s control. This decision was particularly supported by the Ministry of Forestry, which is keen to downsize Indonesia’s wood processing capacity and reduce the pressure on Indonesia’s forests. International donors were also concerned IBRA would write off approximately US$ 2 billion of the forestry debts, thereby giving Indonesia’s forestry conglomerates a huge capital subsidy.
However, IBRA and the Ministry of State-Owned Enterprises have done nothing to meet the Government’s commitment to close down heavily indebted forestry companies. "What in fact is happening is that bankrupt timber industries are buying back their debts at sharply discounted prices and the government is writing off the rest. This is allowing them to continue to operate and consume large volumes of timber, much of which is widely believed to come from illegal logging," senior CIFOR policy scientist, Chris Barr said.
According to Bambang Setiono, a financial analyst with CIFOR, IBRA sold US$ 2.3 billion (Rp 20 trillion) of its forestry debts during the second half of 2002, at undisclosed prices. This included Rp 6.2 trillion in debts from the Bob Hasan Group and Rp 2.6 trillion in debts from the Djajanti Group. IBRA made these sales without informing the Indonesian public or the IMF, in clear violation of IBRA’s transparency obligations. The fact that IBRA was able to do this raises doubts about how much attention the IMF and World Bank are giving the whole process.
But more important, according to Setiono and Barr, is that IBRA sold about $1.3 billion dollars of the forestry debt to Bank Mandiri, a Government owned bank soon to be privatised. By ‘selling’ the debts from one government entity to another, the government’s net revenue from the sale was zero.
"The government sold the forestry debts to itself. So, unlike IBRA debt sales to external buyers, where it generally only got 20 or 30 cents in the dollar, it now gets nothing. And let’s not forget, the forestry debts sold to Bank Mandiri involves $1.3 billion dollars that belong to the people of Indonesia," Barr said.
It is important the CGI and Indonesian stakeholders watch carefully what Bank Mandiri does with its newly acquired forestry assets. The companies owing these debts represent a sizeable portion of Indonesia’s timber and plywood industries. It is unlikely Bank Mandiri will be able to sell the debts to anyone except the owners of the indebted companies, many of whom have strong political connections. In short, no private company is likely to buy debt that the legally powerful IBRA was unable to recover.
"We may see Bank Mandiri write off much of its forestry debt as part of its privatization process. If this happens, the Government will lose an additional US$1 billion in potentially recoverable debt. Even worse, it does nothing to downsize the country’s forestry sector and reduce pressure on Indonesia’s rapidly vanishing forests," Setiono said.
The Center for International Forestry Research urges the CGI to insist that Bank Mandiri call in the forestry sector debts on its books before it is allowed to issue its upcoming initial public offering (IPO). Companies that fail to repay should be closed, as the Minister of Forestry suggests. Such punitive action would create a win-win situation: Bank Mandiri would recover a sizeable portion of the forestry debts it holds and the capacity of Indonesia’s wood processing industry would be substantially reduced.
For interviews and information:
- Chris Barr
- Bambang Setiono +62 (0)811977594 Greg Clough +62 (0)8128646613