Comments on: Indonesia may be unfairly tarred by Bumi’s brush http://blogs.reuters.com/breakingviews/2012/10/04/indonesia-may-be-unfairly-tarred-by-bumis-brush/ Mon, 26 Sep 2016 03:26:00 +0000 hourly 1 http://wordpress.org/?v=4.2.5 By: Rob-in-Jakarta http://blogs.reuters.com/breakingviews/2012/10/04/indonesia-may-be-unfairly-tarred-by-bumis-brush/comment-page-1/#comment-10791 Thu, 04 Oct 2012 16:03:46 +0000 http://blogs.reuters.com/breakingviews/?p=14410#comment-10791 “On a side note, I would be curious as to what exactly has incented the writer to express this opinion, as it is unusual to see someone rise up to defend an emerging market economy.”

Could it be because the article is correct and the man that is ultimately responsible for the Bumi PLC fiasco is also pushing to be on the presidential ballot in 2014?

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By: IndoAdvisor http://blogs.reuters.com/breakingviews/2012/10/04/indonesia-may-be-unfairly-tarred-by-bumis-brush/comment-page-1/#comment-10786 Thu, 04 Oct 2012 06:45:03 +0000 http://blogs.reuters.com/breakingviews/?p=14410#comment-10786 I totally disagree, and smiled when I saw that the writer’s opinion is totally based on a Citicorp debt to equity statistic, and while the statistic may indicate that Indonesian corporate are borrowing to little, I would be very hesitant to reach this conclusion without an understanding of how financings are typically completed “on the ground” in Indonesia.

Most business people knowledgeable about transacting and financing in Indonesia, would probably be aware that most Indonesian lenders, lend based on asset value. “Independent expert consultants” retained by the lenders often verify these “asset values”. It is common knowledge amongst businessmen and bank loan underwriters here that the “asset value” shown to a lender can be influenced, if the right incentives are placed on the table. As a result I would suggest that reported “asset values” used in debt level calculations tend to be very unreliable and are open to corruption. It is not unusual, to hear from investment bankers and local business owners, who understand how local financing works , that many business/project owners are “laughing all the way to the bank” after a successfully completed financing, because they were in effect able to get over 100% financing.

The Bumi problems are asymptomatic of the corruption that is endemic in the legal and government system in Indonesia and I believe that the Bumi problems are a precursor to many other problems the economy will face when the next economic/fx shock forces all those investors, banks, and credit rating agencies that have been painting such a rosy picture about the Indonesian economy (based on questionable ratios and statistics that western analysts typically take for granted as reliable indicators), wonder what went wrong. I don’t think I am being an unreasonable pessimist here but I do have a “de ja vu” feeling that we are about to see a repeat of 1998. I believe others do as well based on recent statements by Indonesian government officials, http://www.thejakartapost.com/news/2012/ 09/20/private-sector-warned-over-rising- foreign-borrowing.html .
On a side note, I would be curious as to what exactly has incented the writer to express this opinion, as it is unusual to see someone rise up to defend an emerging market economy.

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