Cabinet must stamp out corruption in ailing banks

Cabinet must stamp out corruption in ailing banks

The Indonesian Bank Restructuring Agency (IBRA) has reported
increases in liquidity support to ailing banks. Economist Kwik
Kian Gie finds disturbing facts about the rife corruption in the
banks.

JAKARTA (JP): Absence of media reports on the manipulation of
financial data of commercial banks under the supervision of the
Indonesian Bank Restructuring Agency (IBRA) shows poor concern
about corruption. IBRA said on May 15 that 54 commercial banks
under its supervision had accrued Rp 109.4 trillion ($7.8
billion) in financial support from Bank Indonesia.

The amount of support for the banks had by then increased to
Rp 130 trillion; it may well have increased further by now.

According to IBRA report, six banks -- Bank Dagang Negara
Indonesia (BDNI), Bank Danamon, Bank Umum Nasional, Bank Tiara,
Bank Modern and Bank PDFCI -- had lent Rp 76.7 trillion to their
borrowers. Of this amount, Rp 47.3 trillion, or 67 percent, was
channeled to their own affiliated companies.

The credit provided by BDNI to its affiliates reached 90.7
percent (Rp 24.4 trillion) of its Rp 26.9 trillion borrowing from
Bank Indonesia, Bank Umum Nasional 78.4 percent (Rp 8.7 trillion)
of Rp 11.1 trillion, Bank Modern 63.2 percent (Rp 1.2 trillion)
of Rp 1.9 trillion, Bank Danamon 43.8 percent (Rp 12.9 trillion)
of Rp 29.5 trillion and Bank Tiara 2 percent (Rp 100 billion) of
Rp 3.4 trillion. Bank PDFCI gave no loans to its own affiliates.

In plain and simple terms, 87 percent of the Rp 66.9 trillion
lent by Bank Indonesia to the banks was channeled back to their
affiliates.

This is a grievous, arrogant and utterly ludicrous violation
of the regulation on legal lending limits.

The authorities are still trying to cover up facts. Instead of
hiring Indonesian consultants, they prefer to hire foreign
consultants, who will keep silent as long as they are well paid
and well served, to audit the violating banks.

Furthermore, the auditors learned that the banks had marked up
their assets substantially. They discovered that the real value
of BDNI's total assets was only 17.2 percent (Rp 5.8 trillion) of
the Rp 33.6 trillion it had reported, Bank PDFCI 25.5 percent (Rp
1.1 trillion) of Rp 4.4 trillion, Bank Tiara 46.4 percent (Rp 2
trillion) of Rp 4.3 trillion, Bank Danamon 51.2 percent (Rp 13.1
trillion) of Rp 25.5 trillion, Bank Modern 57.1 percent (Rp 1.8
trillion) of Rp 3.1 trillion and Bank Umum Nasional 72.4 percent
(Rp 11.3 trillion) of Rp 15.5 trillion.

If the Rp 51.4 trillion difference between the amount of
assets reported by the banks and that calculated by the auditors
were deposited by their personnel in banks, it would produce
total after-tax monthly interest of about Rp 1.82 trillion. It
dwarfs the potential income of Rp 15 trillion that state-owned
companies might generate through share sales to private
investors.

The IBRA report said the total assets of the banks whose
operations were now suspended reached only 20 percent of their
total financial obligations. Banks whose management was taken
over by the IBRA had lent their funds to their shareholders and
executives.

The report also said, "...BDNI and Bank Danamon had faced
liquidity problems even before the start of the monetary crisis
and they obtained large amounts of loans from Bank Indonesia
through special money market securities. The loans reached Rp 9.8
trillion for BDNI and Rp 11.3 trillion for Bank Danamon."

Between May and October 1997, BDNI provided new loans worth
$600 million to its affiliates. Its shareholders should thus take
responsibility for the repayment of the loans, the report said.

The possibility of litigating the case needed to be seriously
considered because the administration of the loans to affiliated
companies was very weak, it said.

The last sentence on possible litigation indicates that the
auditors were irritated by their own findings, but they added
that IBRA still had no strong legal basis to take legal
proceedings against banks under its supervision because it needed
authorization from Bank Indonesia for litigation. Documents for
their litigation are still being processed.

Because the legal lending limit violations have involved a
large sum of money and IBRA has mentioned the possibility of
litigation, I have a question for President Habibie, Bank
Indonesia Governor Sjahril Sabirin, IBRA Chairman Glen Jusuf,
Minister of Finance Bambang Subianto, Attorney General Let. Gen.
Andi Muhammad Ghalib and National Police Chief Let. Gen.
Roesmanhadi:

What concrete measures will you take against those major
violators?

The Cabinet, which touts itself as one of reform and
development, should respond to this question openly and explain
its plans on the eradication of the extraordinarily extensive
corruption practices in the country.