All the President's men simply buy time

With the Bank Bali scandal still unresolved despite the lengthy amount of time which has passed since it broke publicly, there is scant trust remaining in the government's sincerity in settling the case. Economist Tony A. Prasetyantono of Gadjah Mada University discussed the issue with The Jakarta Post.

Question: How do you perceive the government's handling of the Bank Bali scandal?

Answer: I see it as nothing but the people involved trying to buy time while waiting for a new scandal which will make the people forget this one. After all, a case will eventually be forgotten once another case emerges. The case of (former attorney general) Andi M. Ghalib is an example.

All of the president's men involved in the case are simply buying time. This can clearly be seen by how (chairman of the supreme advisory board) A.A. Baramuli is trying to shift attention from the real case by calling on people to destroy Kwik Kian Gie (of the Indonesian Democratic Party of Struggle). He is trying to shift the case from one of conspiracy to a dispute between political parties.

Q: Some people have said that the amount of money involved in the scandal is nothing compared to the money currently being managed by the Indonesian Bank Restructuring Agency (IBRA). Your comment?

A: It's true the Rp 564 billion is nothing compared to the some Rp 600 trillion managed by IBRA. But the scandal could snowball, which could disrupt the country's economic recovery.

First, it would make the government's bank recapitalization program more difficult to carry out. There would be difficulty deciding how much funds were required because the amount would constantly change, depending on the leaks in the banks to be recapitalized.

The Rp 564 billion leak in Bank Bali results in more recapitalization funds being required. Pradjoto (a banking law expert) has said 11 other banks have problems similar to Bank Bali's.

So the more problematic banks there are, the more funds needed for recapitalization. Remember, 80 percent of the recapitalization money is being raised through the issuance of government bonds, and the government has to pay Rp 35 trillion in interest on these bonds. In short, no matter how little a bank's leak, it will directly affect the national budget... and it is the people who bear the cost.

The second impact is the resulting threats from the International Monetary Fund and the World Bank. They are not playing around; their threats are serious. How can they disburse aid with no guarantee it won't be abused? Surely they aren't going to give loans to a country which has no credibility.

Q: Would these agencies follow through on their threats to stop the disbursement of aid to the country, realizing this would make it impossible for Indonesia to repay its loans?

A: Not repaying our loans would backfire; the international community could treat us like Iraq and impose embargoes on us.

We now get some US$8 million a month in loans, and with the rescheduling (by the agencies) it's now half that amount.

Canceling the aid would make the wheels of economy stop. Thirty percent of the national budget comes from overseas loans. Projects would be abandoned, the welfare of civil servants would be affected and the effects would multiply.

Aid from the IMF contributes significantly to our foreign exchange reserves and in securing the balance of payment.

A cancellation of IMF aid would therefore affect the value of the rupiah, which has now weakened beyond reasonable explanation. It should be higher now because the U.S. dollar is weakening against the Japanese yen.

Based on an analysis of the economy, Rp 10,000 against the U.S. dollar does not make sense.

But this happened because the scandal has not been handled properly. In other words, the sky's the limit for the rupiah's value against the U.S. dollar.

This implies that the Bank Bali scandal, along with the East Timor situation, is really giving investors a negative perception and sentiment toward the market. Not only should we look into the amount of the leak, but also the essence of the problem and its impact, especially on the country's credibility.

Q: How long would it be before we felt the impact of a cancellation of international loans?

A: Logically it would be in one or two months. Presently we have a reserve fund of $16 billion. Without loans from the IMF, this would clearly decrease within the next two months.

Q: Is it the Bank Bali scandal or East Timor which is most directly affecting the economy?

A: For now it's the bank scandal which has more influence. The IMF has clearly said that the scandal is a critical point in considering further assistance to restore our economy. East Timor so far has only resulted in political sanctions.

Q: What should President B.J. Habibie do about the bank scandal?

A: Statements alone are not enough; he should show his sincerity. The scandal is a test case to see whether Habibie has the guts to perform a "political amputation". The first step could be making Baramuli step down as DPA chairman. Otherwise, people will think that Habibie may in one way or another be involved in the scandal. (swa)