Sat, 15 Jul 2000

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.