IMF irked as it awaits Indonesia scandal report

IMF irked as it awaits Indonesia scandal report

WASHINGTON (Dow Jones): While appalled at the "humanitarian
disaster" unfolding in East Timor, International Monetary Fund
officials are also fuming at signs that Indonesia is stalling on
its promise to get to the bottom of the so-called Bank Bali
scandal.

Stanley Fischer, the IMF's first deputy managing director,
strained to make this point as diplomatically as he could during
a media briefing earlier Thursday.

However, he stressed that the IMF views as a "huge issue"
allegations that around US$70 million was transferred out of Bank
Bali earlier this year to the account of a senior official in the
ruling Golkar Party.

Indonesia's International Review Committee, chaired by former
finance minister Mar'ie Muhammad, was directed to investigate and
it authorized PricewaterhouseCoopers to conduct an audit of Bank
Bali.

The fate of this report was uppermost in Fischer's mind when
he reviewed developments in Indonesia Thursday.

"It should have been presented to Mar'ie Muhammad, who has
been appointed to deal with these issues as one of the most
respected men in Indonesia," Fischer said.

"And there seem to be delays in giving him the study, and
there seem to be questions about precisely what is in that study.
These are the issues that have to be resolved," he said.

Fischer said the restructuring of Indonesia's banking sector
is "at the heart" of the IMF's $12-billion loan agreement with
Jakarta.

The government is pressuring the banks, many of them state-
owned, to deal with their bad debts or face closure. Some banks
are seeking to avoid closure and bolster their capital reserves
by collecting long-overdue debts.

"If that (money) is being used for political purposes, which
is what the charge is, then we're in an extremely difficult
situation," Fischer said.

The crisis in East Timor represents a double-edged sword for
the IMF, according to some within the IMF.

International outrage over Jakarta's apparent antipathy toward
the slaughter of East Timorese provides the IMF with determined
political support for any future steps it takes to punish
Indonesia.

However, it also deflects attention from what might be the
most dramatic public exposure of official corruption in Indonesia
through the disclosure of the Bank Bali scandal.

Regardless, unless Jakarta takes steps to facilitate a swift
and full examination of the Bank Bali scandal, the IMF will
suspend staff missions.

IMF management will consider whether they should send the
September staff mission to Jakarta during meetings Friday and
over the weekend.

Hubert Neiss, the IMF's director for Asia and the Pacific,
made it clear in an interview on Cable News Network earlier
Thursday that the IMF team is unlikely to be packing its bags in
coming days.

"The IMF mission is presently on hold," Neiss said. "The
decision (to send it) at this point hasn't been made."

He added the IMF hasn't yet "threatened to cut off funding"
but added that the IMF will work with the Indonesian authorities
only "under the right conditions."

"What we are doing is to review the situation and decide the
appropriate time when we can have the next renewed discussions"
on another installment from the $44 billion international rescue
package for Indonesia, Neiss said.

In Auckland, Indonesia's Coordinating Minister for Economy and
Finance Minister Ginandjar Kartasasmita said Friday it isn't
appropriate to use international financial institutions to pursue
political goals, such as an easing of violence in East Timor.

"It is really inappropriate to use the fund, the IMF and the
World Bank, for political purposes. It would set a bad precedent.
This time it is Timor, next time it is what?" Ginandjar told
reporters.