Ruru makes progress amid chaos

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Bacelius Ruru seems an unlikely troubleshooter in the rough and tumble world of Indonesia's financial sector, which is plagued by exceptional levels of corporate debt, continuing accusations of corruption and persistent political instability.
Yet the mild-mannered Harvard-educated former bureaucrat has demonstrated that quiet persistence and hard work behind the scenes - plus an approach that emphasizes trust and good corporate governance - can work even in Indonesia.
This month Ruru will take over as chairman of the Jakarta Stock Exchange (JSE), after two years serving as the head of the Jakarta Initiative, an independent task force set up to assist creditors and debtors to reschedule Indonesia's private sector foreign debt. Of the $70 billion involved, between 40% and 50% became distressed following the collapse of the currency in 1997.
When Ruru took over the job of tidying up this mess, it was difficult even to estimate the total debt, which was owed to hundreds of creditor banks by thousands of companies. Many businessmen, wiped out by the collapsed currency, went into hiding. Large corporate debtors staged a rearguard action against efforts by the government and foreign creditors to make them bankrupt through the courts.

Up to 40% of the total private sector debt is owed by local companies that are subsidiaries of mainly Japanese companies. Here the overseas shareholders have resolved the problem directly.
Now, after persistent efforts, Indonesia is seeing results on the rest: almost $12 billion in debt has now been restructured through the Jakarta Initiative out of a total of over $19 billion registered for negotiations, and another $8 billion through the Indonesian Bank Restructuring Agency (IBRA). Allowing for double counting, around $16 billion is now performing again, with up to $19 billion still to be dealt with.
"We expect to wind up the Jakarta Initiative at the end of next year," says Ruru. "Almost all the large debtors have now been dealt with and the tax incentives which are encouraging them to negotiate a deal will expire next year. More debt is still emerging, but of lower amounts. Business people can now see that if they want to take part in our recovery they have to clear up their past problems."
Almost 35% of debts restructured recently are in the form of debt-for-equity swaps, which the Jakarta Initiative expects to increase to 40% soon. That will not only benefit debtors, who are constantly afraid of further currency depreciation, but will also reduce pressure on the currency as fewer debtors need to buy dollars.
"The currency is unstable partly because of political problems, but also because of the recurring demand for dollars for debt servicing," says Samuel Tobing, chief executive of the Jakarta Initiative. "At the moment its volatility is disrupting settlements which are ready to be signed up. If there's anything the bankers hate it's renegotiations, but the companies simply can't meet their obligations. That's why we see debt-for-equity swaps as a better solution for the future." Otherwise Indonesia faces a vicious circle: the more debt starts to perform, the more the rupiah is likely to go down, making debt unpayable again.
Ruru's main task as head of the JSE will be to prepare it for revival as Indonesia's recovery gets under way. The exchange has been hard hit, with a flight of foreign investors because of the currency collapse in 1997 and political instability since 1998. It had to display some resilience in the face of a terrorist bombing that killed more than 20 people at its central Jakarta headquarters last year.
Ruru's priority will be to introduce remote trading, planned for some time, but delayed because of a shortage of funds. It's now urgent because the whole southeast Asian regional market plans to go online in 2003. Raising the funds may be by demutualization of the exchange.
"The rules will need to be changed as the JSE is currently set up as a limited liability company owned only by its members, not as a mutual," Ruru says. "We are studying ways to reduce the cost of the expansion as well as raising the funds." As a former head of Bapepam, the exchange regulator, Ruru will be well placed to get any rule changes agreed by the system.
He also plans to introduce a much stronger emphasis on corporate governance and transparency in the markets, focusing on enforcement. "We have been in compliance with world standards on corporate governance in the past," he says. "But it hasn't been perfect. I want all listed companies to meet world standards. Part of the reason for our financial crisis was related to that failure."
Ruru believes that enforcement will be much easier this time around because so many of the worst offenders - including the family of former president Suharto and their close friends - are now out of the picture. Many of the larger listed companies are now owned by new foreign investors or foreign creditors that have taken charge and introduced new management.

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Ruru makes progress amid chaos

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