Should We Uphold LPEI/EximBank As a Financial EntityThat Drains The Nation’s Funds Like an “Addict”?

by Eko B. Supriyanto, Editor in Chief Infobank

SRI Mulyani Indrawati (SMI), the Minister of Finance of the Republic of Indonesia, has reported suspicions of fraud at the Indonesian Export Financing Agency (LPEI). The value reaches Rp2.5 trillion. Moreover, the Corruption Eradication Commission (KPK) mentioned a state loss of Rp3.4 trillion. Over the past five years, the financial health of LPEI has been “bleeding” and requires multiple injections of capital through state capital participation (PMN) repeatedly.

In brief, LPEI appears reliant on PMN, or funds sourced from taxes. According to data from the Infobank Research Bureau (BIRI), between 2010 and 2021, LPEI has utilized Rp28.7 trillion of state funds via PMN. Despite managerial alterations, the situation hasn’t progressed. Rather, there are murmurs of fraud within the organization. Could this be attributed to LPEI’s affiliation with the Ministry of Finance (Kemenkeu), facilitating a form of “bailout” from the national budget (APBN).

Reports of alleged breaches at LPEI according to SMI’s version are said to be continuing. She mentioned that in the near future, they will report six more debtors. Four debtors reported to the Attorney General’s Office (Kejagung) for fraud are PT RII Rp1.8 trillion, PT SPV Rp144 billion, PT SMS Rp216 billion, and PT PRS Rp305 billion. Before the four debtors were reported to Kejagung, according to Infobank records, in 2022, there were eight defendants who had been convicted in court due to “messy” bad loans at LPEI. So, reporting on bad debtors of LPEI is not something new.

According to Law Number 2 of 2009 concerning LPEI, compared to regular banks, LPEI has more flexibility in financing activities, thus supporting the acceleration of national export growth by providing financing on the supply side (domestic) and demand side (foreign). Financing can be provided conventionally or based on Sharia principles to corporations and MSMEs. Moreover, LPEI is a special institution under the Ministry of Finance mandated to provide national export financing in the form of financing, guarantees, including insurance, and consultancy services.

As per data from the Infobank Research Bureau, as of September 2023, the financing extended by LPEI continued to dwindle, reaching Rp74.522 trillion compared to the year-end figure of 2022. This marks a notable decrease from its peak in late 2018 when LPEI’s financing soared to Rp120.071 trillion. However, adversity struck in late 2019 when LPEI incurred losses amounting to Rp4.7 trillion. Subsequently, its role in financing has steadily diminished. Although it briefly returned to profitability in 2020 and 2021, by the close of 2022, it faced another setback, recording a loss of Rp3.114 trillion.

Possibly, the profits accumulated by LPEI in 2020 and 2021 could be attributed to tapping into the “Semar piggy bank” of loss reserves. In 2023, particularly in September, LPEI once again posted a profit of Rp94.763 trillion. However, the year-end position for 2023 remains undisclosed as its financial report has yet to be announced.

Looking at the financial reports over the past 10 years, the position of LPEI financing (September 2023) is still lower compared to the end of 2015. LPEI’s financial report improved when there was PMN from APBN. After that, it collapsed again due to defaulting exporters or those claiming to be exporters. The financing pattern might be similar as well.

Based on Infobank Institute records regarding LPEI’s asset structure, it’s evident that LPEI competes not only with Bank Mandiri and BNI but also with foreign banks. LPEI ought to bolster state-owned banks by offering guarantees, prioritizing lucrative export-import derivative transactions with enhanced risk mitigation strategies. Consultancy services have shown limited uptake and effectiveness.

It’s important to recognize that providing export financing offers a faster and more straightforward approach. However, its primary beneficiaries might be tier-2 debtors, as premium clients often seek the lower interest rates available from competitors like Bank Mandiri and BNI. As a result, LPEI should avoid direct competition with banks.

So, what’s the point of maintaining LPEI – which, frankly, hasn’t produced many new MSME exporters? It’s true that LPEI’s financing has an impact on investment, and of course, its contribution to non-tax state revenues (PNBP). However, the APBN funds injected into LPEI are too substantial. PMN keeps flowing into LPEI, reaching Rp28.7 trillion. Clearly, this hasn’t made LPEI meet its aspirations. It could also be a shareholder problem for LPEI.

The solution lies in purging LPEI of imprudent debtors, including those deemed as “crocodile” debtors. Once this cleanup is complete, merging with or being acquired by state-owned banks such as Bank Mandiri or BNI would be advantageous. However, this should be executed without integrating the relatively substantial “trash” of bad debts from LPEI. It’s imperative to separate the bad bank from the good bank beforehand.

Does Indonesia still need LPEI if it continually drains PMN, which is essentially state funds? Moreover, it’s easily breached by foolish debtors.

No donkey falls into the same hole twice. So, there should be no more PMN to fill the same hole (bad loans). The way out, as mentioned earlier, should be entrusted to more capable state-owned banks. (*)