Bashing Bank Bali

Bashing Bank Bali

As the fate of the beleaguered Bank Bali became more uncertain
following its transfer from the Indonesian Bank Restructuring
Agency (IBRA) to the central bank on Thursday, the fundamental
question that remains is whether it is still worth taxpayers'
money to bail out the troubled bank.

The problem is that the bank has been deprived of its basic
asset -- public trust -- and its capital has now been eroded to
almost minus 100 percent. Since its takeover by the government in
late July last year, and the explosion of the so-called Bank Bali
scandal a few days later, the bank has virtually lived an
artificial life on the support of the government's blanket
guarantee on the bank's deposits.

It is indeed an irony that Bank Bali, which until early 1998
was still one of the best managed private banks in the country,
has deteriorated to its tragic condition now, especially after it
was put under the government's (IBRA's) management. True, it is
not fair to put the blame entirely on the government. The
politically-charged scandal relating to the repayment of its
inter-bank claims in June, 1999, and the messy litigation process
initiated by the Ramli family, have been mainly responsible for
the delay in its recapitalization and for the bank's continuous
bashing by the mass media, analysts and politicians.

But in hindsight, and after perusing back over the special
audit of the scandal by PriceWaterhouseCoopers, as well as
thoroughly studying the March 30, 2000 verdict of the Jakarta
Administrative Court that annulled the government's July 23, 1999
takeover of the bank, we can come to the conclusion that the
bank's troubles were initially caused by the government itself.

First of all, as the Jakarta Administrative Court stated in
its consideration of the verdict, it was the faulty government's
ruling which held up the repayment of Bank Bali's interbank
claims for more than one year and was largely responsible for
sabotaging its recapitalization process. The delay put Rudy in
such a desperate condition that he felt compelled to use the
'good offices' of politically well-connected businessmen to
process the claims through a cessi agreement, which exploded in
early August, 1999 into what was is now known as the Bank Bali
scandal, a political skeleton that was responsible partly for
killing then president B.J. Habibie's chance for reelection. When
IBRA and the central bank did amend the illogical ruling in mid-
1999 to allow for the repayment, the damage had already been
done.

However, instead of acting speedily and firmly to redress the
bank's grievances, the government committed another grave mistake
by forcing the Ramli family to accept Standard Chartered Bank of
England as a significant shareholder in Bank Bali to help speed
up its recapitalization. The employee revolt that was triggered
by Standard Chartered's takeover of Bank Bali's management soon
after its July, 1999 takeover, further worsened the bank's
condition, as most of its major depositors lost trust in the bank
and closed their accounts.

The government made another terrible mistake in late April
when it, with the approval of the House of Representatives,
decided to recapitalize the bank by the end of June, even after
the Jakarta Administrative Court had decided earlier, on March
29, to annul the government's takeover of the bank. The
government might have reckoned then that it was still less costly
to recapitalize the bank through the issuance of treasury bonds
than to liquidate it, a process that would require the government
to put up at least Rp 5 trillion in cash to reimburse the bank's
depositors and creditors and to pay severance allowances for
fired employees.

But it seems that the bank is beyond salvage. First of all,
the Jakarta Administrative Court's verdict put the bank's status
in limbo. Then investors who had amassed more than 50 percent of
Bank Bali's shares through nominee Deutsche Bourse Clearing AG of
Germany through the Jakarta stock market last year have yet to be
identified and their status be cleared before a rights share
issue could be launched. Anyway, the bank seems to have little
prospects even after recapitalization, given its severely damaged
reputation and in view of the economic woes that will face the
banking industry within the next two years.

Another bank liquidation now would not be likely to cause any
panic thanks to the government's blanket guarantee on bank
deposits, especially in the case of the almost deserted Bank
Bali. But it is most imperative and urgent for the central bank
to make its decision soon because, as IBRA itself has admitted,
under its present condition Bank Bali's operations make a loss of
at least Rp 75 billion a month.