Fraud guaranteed<\/p>\n
The alleged plundering of almost US$80 million from Bank Bali
\nrevealed two major flaws which, if not removed, may abort the
\nbudding recovery of Indonesia's economy.<\/p>\n
First of all, the government blanket guarantee of bank
\ndeposits and claims, though succeeding in preventing the whole
\nbanking system from a total collapse, is killing market
\ndiscipline and causing moral hazards among bank managers, owners
\nand depositors. Political leaders need to act efficiently and
\nprudently.<\/p>\n
The guarantee system seems to be defective in its design. The
\nalmost unlimited categories and sums of bank deposits and claims
\nthe scheme covers and the loosely written rules on its
\nimplementation have made the scheme widely open to abuse. Since
\nthe scheme is funded entirely by the state budget, the costs and
\nlosses are fully borne by taxpayers. Thus far the government has
\nissued Rp 53.8 trillion ($6.9 billion) in treasury bonds to
\nfinance the guarantee scheme but, given the persistently shaky
\ncondition of most banks, the costs will most likely increase
\nfurther.<\/p>\n
The defect was initially understandable as the blanket
\nguarantee scheme was launched in a panic response to the massive
\nruns on banks in January 1998, triggered by the loss of public
\ntrust in the poorly managed, inadequately supervised and
\ncorruption-ridden banking system.<\/p>\n
It is in fact the artificial respiration provided by the
\nguarantee system that has caused the domestic banking industry to
\nstay alive now even though most banks are technically bankrupt
\nwith negative capital. Without the government guarantee, no one
\nwould be willing to deal with domestic banks.<\/p>\n
But the government should have realized by now, more than 18
\nmonths after the introduction of the scheme, that without market
\ndiscipline, the banking reform will never succeed in creating
\nsound banks. And market discipline will never be restored if the
\nscheme is not revised to minimize moral hazards.<\/p>\n
We would not go as far as Amien Rais, chairman of the National
\nMandate Party, who demanded total abolition of the guarantee
\nscheme, because such a drastic move would immediately lead the
\nailing banking system into a total collapse. But revision is most
\nimperative. As we have suggested several times here before, a
\nceiling should be imposed on the sums of deposits covered by the
\nscheme and interbank transactions should be excluded from the
\nguarantee system to impose market discipline.<\/p>\n
The rationale is that people who are adequately resourceful to
\nanalyze banking conditions, and able to collect banking
\ninformation from analysts, should be allowed to exercise market
\njudgment as to which banks they deal with. Likewise, bankers
\nshould be allowed to lose their shirts if they don't know the
\nsoundness of banks they make transactions with. Why should
\ntaxpayers be punished for the wrongdoings of unscrupulous
\nbankers?<\/p>\n
Here is the second appalling flaw. The Bank Bali scandal
\nvalidates the public's fear that little has changed in the way of
\npublic and corporate governance. Poor management, corruption and
\nthe central bank's incompetent and highly venal supervision,
\nwhich precipitated the explosion of Indonesia's banking crisis in
\nlate 1997, remain the biggest problems in the banking industry.
\nAny incipient confidence in the $70 billion bank restructuring
\nprogram under tight supervision of the International Monetary
\nFund turned out to be false.<\/p>\n
The questionable deal that involved almost one-third of Bank
\nBali's total assets of Rp 10.01 trillion as of January caught the
\nattention of the Indonesian Bank Restructuring Agency, Bank
\nIndonesia, the finance ministry and the Capital Market
\nSupervisory Agency (securities commission) only seven months
\nlater. Had Standard Chartered Bank not uncovered the big hole in
\nBank Bali's assets in the course of its due diligence, made in
\nlight of its plan to acquire 20 percent of the bank, the affair
\nmight have remained unknown. Had it not been for banking analyst
\nPradjoto's moral courage to reveal the scandal to the media, the
\nscam would have been covered up by those in power.<\/p>\n
One would then wonder that if the level of disclosure,
\ntransparency and accountability of publicly listed Bank Bali
\nturns out to be so abysmal, the quality of corporate governance
\nin other business entities must be maddeningly much worse. This
\nis because Bank Bali, like all other financial institutions which
\nmobilize funds from the public, is supposedly subject to tighter
\ndisclosure requirements in view of its fiduciary responsibility
\nand the fact that it is owned by tens of thousands of investors
\nthrough the stock exchange.<\/p>\n
The government still seems oblivious to the alarming market
\nbell. The sudden steep fall in the rupiah rate over the last two
\ndays, despite the positive macroeconomic indicators over the last
\nfew months, reflects the market assessment of the bombed-out
\nstate of our law enforcement and public and corporate
\ntransparency and accountability.<\/p>",
"url": "https:\/\/jawawa.id\/newsitem\/fraud-guaranteed-1447893297",
"image": ""
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"sponsor": "Okusi Associates",
"sponsor_url": "https:\/\/okusiassociates.com"
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