Bashing Bank Bali<\/p>\n
As the fate of the beleaguered Bank Bali became more uncertain
\nfollowing its transfer from the Indonesian Bank Restructuring
\nAgency (IBRA) to the central bank on Thursday, the fundamental
\nquestion that remains is whether it is still worth taxpayers'
\nmoney to bail out the troubled bank.<\/p>\n
The problem is that the bank has been deprived of its basic
\nasset -- public trust -- and its capital has now been eroded to
\nalmost minus 100 percent. Since its takeover by the government in
\nlate July last year, and the explosion of the so-called Bank Bali
\nscandal a few days later, the bank has virtually lived an
\nartificial life on the support of the government's blanket
\nguarantee on the bank's deposits.<\/p>\n
It is indeed an irony that Bank Bali, which until early 1998
\nwas still one of the best managed private banks in the country,
\nhas deteriorated to its tragic condition now, especially after it
\nwas put under the government's (IBRA's) management. True, it is
\nnot fair to put the blame entirely on the government. The
\npolitically-charged scandal relating to the repayment of its
\ninter-bank claims in June, 1999, and the messy litigation process
\ninitiated by the Ramli family, have been mainly responsible for
\nthe delay in its recapitalization and for the bank's continuous
\nbashing by the mass media, analysts and politicians.<\/p>\n
But in hindsight, and after perusing back over the special
\naudit of the scandal by PriceWaterhouseCoopers, as well as
\nthoroughly studying the March 30, 2000 verdict of the Jakarta
\nAdministrative Court that annulled the government's July 23, 1999
\ntakeover of the bank, we can come to the conclusion that the
\nbank's troubles were initially caused by the government itself.<\/p>\n
First of all, as the Jakarta Administrative Court stated in
\nits consideration of the verdict, it was the faulty government's
\nruling which held up the repayment of Bank Bali's interbank
\nclaims for more than one year and was largely responsible for
\nsabotaging its recapitalization process. The delay put Rudy in
\nsuch a desperate condition that he felt compelled to use the
\n'good offices' of politically well-connected businessmen to
\nprocess the claims through a cessi agreement, which exploded in
\nearly August, 1999 into what was is now known as the Bank Bali
\nscandal, a political skeleton that was responsible partly for
\nkilling then president B.J. Habibie's chance for reelection. When
\nIBRA and the central bank did amend the illogical ruling in mid-
\n1999 to allow for the repayment, the damage had already been
\ndone.<\/p>\n
However, instead of acting speedily and firmly to redress the
\nbank's grievances, the government committed another grave mistake
\nby forcing the Ramli family to accept Standard Chartered Bank of
\nEngland as a significant shareholder in Bank Bali to help speed
\nup its recapitalization. The employee revolt that was triggered
\nby Standard Chartered's takeover of Bank Bali's management soon
\nafter its July, 1999 takeover, further worsened the bank's
\ncondition, as most of its major depositors lost trust in the bank
\nand closed their accounts.<\/p>\n
The government made another terrible mistake in late April
\nwhen it, with the approval of the House of Representatives,
\ndecided to recapitalize the bank by the end of June, even after
\nthe Jakarta Administrative Court had decided earlier, on March
\n29, to annul the government's takeover of the bank. The
\ngovernment might have reckoned then that it was still less costly
\nto recapitalize the bank through the issuance of treasury bonds
\nthan to liquidate it, a process that would require the government
\nto put up at least Rp 5 trillion in cash to reimburse the bank's
\ndepositors and creditors and to pay severance allowances for
\nfired employees.<\/p>\n
But it seems that the bank is beyond salvage. First of all,
\nthe Jakarta Administrative Court's verdict put the bank's status
\nin limbo. Then investors who had amassed more than 50 percent of
\nBank Bali's shares through nominee Deutsche Bourse Clearing AG of
\nGermany through the Jakarta stock market last year have yet to be
\nidentified and their status be cleared before a rights share
\nissue could be launched. Anyway, the bank seems to have little
\nprospects even after recapitalization, given its severely damaged
\nreputation and in view of the economic woes that will face the
\nbanking industry within the next two years.<\/p>\n
Another bank liquidation now would not be likely to cause any
\npanic thanks to the government's blanket guarantee on bank
\ndeposits, especially in the case of the almost deserted Bank
\nBali. But it is most imperative and urgent for the central bank
\nto make its decision soon because, as IBRA itself has admitted,
\nunder its present condition Bank Bali's operations make a loss of
\nat least Rp 75 billion a month.<\/p>",
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