Thu, 06 Feb 2003

Fadel wins suit against IBRA, could set a bad presedent

The Jakarta Post, Jakarta

The former owner of the now defunct Bank Intan, Fadel Muhammad, won his suit against Bank Indonesia and the Indonesian Bank Restructuring Agency (IBRA) over the closure of Bank Intan in the wake of the late 1990s financial crisis.

Fadel's legal victory could set a bad precedent for IBRA's restructuring efforts, including holding former bank owners responsible for past banking crimes that contributed to the economic crisis.

"The court verdict will give other bank owners the incentive to file suit. This is a bad precedent," said banking law expert Pradjoto.

The South Jakarta District Court ordered Bank Indonesia and IBRA to pay Fadel some Rp 23.5 billion (US$2.64 million).

"The court declares that the defendants violated the law," presiding judge Sudaryatno said during the hearing on Wednesday.

Bank Indonesia, the court ruled, had broken an agreement it signed with Fadel in 1996. Under the agreement, which was to expire on Oct. 31, 2011, the central bank was to give Bank Intan 15 years to restructure.

However, Bank Indonesia broke the agreement by handing over Bank Intan to IBRA, which is responsible for restructuring the country's ailing banking industry following the economic crisis, the verdict said.

Bank Intan was one of 38 banks shut down by the government in March 1999 in a bid to clean up the banking industry.

The government closed the banks because their capitalization had severely worsened and bailing them out would have been more costly for the state than shutting them down.

Banking analyst Mirza Adityaswara said Fadel's case would only further convince the public that the government and IBRA could not win legal cases against former bank owners accused of misusing billions of dollars in state funds.

Fadel, who is now the governor of the province of Gorontalo, is among 35 former bank owners who owe massive debts to the state. For more than four years, IBRA has unsuccessful attempted to collect this money.

The agency began legal action against some of the ex-bankers on Tuesday, filing police reports against five of them, including Fadel.

The court ordered Bank Indonesia and IBRA on Wednesday to pay Fadel Rp 23.5 billion because that is the sum he gave to Bank Indonesia following the agreement to restructure Bank Intan.

However, the court dismissed Fadel's petition for Rp 500 billion in nonmaterial losses.

Lawyers for the central bank and IBRA said they would appeal the ruling, with one member of the team calling the ruling "unfair".

"We were just restructuring under Bank Indonesia's orders. Any agreements made by Bank Indonesia with other parties are none of IBRA's business," he said after the hearing.