JAKARTA INITIATIVE TASK FORCE Maximizing Value of Distressed Assets, A Public Policy Perspective OECD Forum for Asian Insolvency Reform Seoul - November 10, 2003

Many have been restructured, but policy issues remain. A. Background. Asian financial crisis has resulted in large numbers of distressed assets. Many have been restructured, but policy issues remain. Key issue: what role should the public sector play in affecting value of distressed assets.

B. Whose Asset-Value Should be Maximized? Original Owners interested in holding on to corporate assets benefit from policies which make it more difficult to seize control Lenders (original and secondary market) interested in seizing and selling assets into an organized market benefit from policies which make it easier to seize and transfer control Government and People government interested in maximizing recovery citizenry interested in long term economic health

C. Government Must Maximize Benefit to Citizens In event of conflicts of interest in evaluating public policy, government must maximize welfare of its own citizens Not controversial, but debate arises where lenders and original corporate owners attempt to align their interests with those of the citizenry Argument frequently pits advocates of investment against those arguing for a nationalistic approach

D. What is the Public Sector's Interest? Asset values directly impact government revenue to the extent it owns distressed assets. Government has interest in seeing efficient market mechanism whereby corporate assets are recycled Tension frequently encountered in determining speed of government asset divestment fast asset sales send message that corporate assets will be recycled however, divestment at "fire sale" prices will negatively impact government recovery

E. Long Term Versus Short Term Speed of divestment and related policies concerning transfer of corporate ownership give rise to timing concerns. Radical seizure and divestment by public and private sector creates instability Denying market opportunity to renew and recycle corporate assets harms long term growth. Solution: maximize long-term growth consistent with short-term stability.

F. Cost-Benefit Analysis Balancing short and long term requires careful cost-benefit analysis Public sector must consider several factors market disruptions in the short term government recovery of its own distressed assets long term economic health Because of essential nature of working market to recycle corporate assets to maintain credibility, emphasis should be on long-term economic health

G. Policy Recommendations Maximizing value of distressed assets to the public requires sound policies to ensure that corporate failure is punished and new entrepreneurs are given the chance to improve the corporate sector This requires policies encouraging a working insolvency system and signal from government that it will allow the market to punish corporate failure. NOTE: this is not the same as maximizing the secondary market value of assets in the hands of lenders. The former is a long term economic goal while the latter is a short-term manifestation of public policy.