IMF recognizes failure to oversee bank reform

JAKARTA (JP): The International Monetary Fund (IMF) admitted that it had failed in safeguarding Indonesia's crucial bank restructuring program, according to noted economist Sri Mulyani.

Sri said on Tuesday that lack of supervision and transparency had led to a series of banking problems, including the high- profile Bank Bali scandal.

"The IMF admits that they could not fully control the implementation of the bank restructuring program," she told reporters after a three-hour meeting on the bank restructuring program between Indonesian economists, IMF technical experts, the World Bank and Bank Indonesia.

Sri said that this was very disturbing because many had assumed that the IMF was fully in charge of overseeing the bank restructuring program.

"But the IMF executives admitted that they have a limited capacity to oversee what the government is doing," she said.

She explained that the IMF had made a fatal mistake in assuming that Indonesia's bank restructuring program would be closely controlled by the public and the House of Representatives.

"But the assumptions turned out to be entirely wrong," Sri said.

Indonesia in April launched a massive bank restructuring program estimated to cost some Rp 550 trillion (US$70.5 billion). The program is seen as a crucial step toward the country's economic recovery.

But the restructuring program received a major blow following the widespread publication of the Bank Bali scandal which implicated several senior officials in charge of the program and businessmen close to President B.J. Habibie.

The Bank Bali scandal revolves around the "illegal" transfer of some US$80 million from the bank to a private firm linked to Habibie's inner circle, which allegedly raised funds to bankroll Habibie's election.

The police is currently investigating the case.

The IMF has demanded that the government disclose the full PricewaterhouseCoopers (PwC) investigation report on the Bank Bali scandal, but the authority turned down the demand citing the banking secrecy code.

The IMF and the World Bank have consequently suspended further aid disbursement to Indonesia.

Sri said the IMF asked the Indonesian people to be more active in supervising the costly bank restructuring program.

She explained that the public has the right to get information about the banking program, especially because the recapitalized banks are now majority-owned by the government.

"For example, we should know what's happening with Bank Mandiri, what their business plan is and why has the cost of recapitalizing state banks soared to more than Rp 137 trillion ($17.3 billion)," Sri said.

Bank Mandiri is a newly formed bank resulting from the merger of four state banks.

"We also want to know more about the recapitalization program of nine private banks. What are their business plans, and why are they being the first banks to be recapitalized.

"This kind of information has not been available to us," she said, regretting that previously the IMF itself had never talked to independent economists.

"We also want to know what guarantee we have that the recapitalization funding is not being transferred by private banks to related business groups."

Sri added that several political parties had expressed concern during the meeting over the lack of transparency on the part of the Indonesian Bank Restructuring Agency (IBRA) in selling its multibillion dollar assets.

"How can we be so sure that the proceeds do not go into other people's pockets?"

Sri suggested that an independent banking commission be set up to complement the existing Independent Review Committee (IRC).

"The oversight is not effective if such a massive recapitalization program is supervised by the IRC alone, which has only a skeleton staff."

In a related development, Chairman of the National Development Planing Board (Bappenas) Boediono confirmed on Tuesday that the Supreme Court would soon issue a legal opinion on whether to allow the release the full PwC audit report on the Bank Bali case.

He said that a legal basis was needed because such a disclosure might violate the banking secrecy code.

The Supreme Audit Agency (BPK) has insisted that the complete PwC audit cannot not be released because it contains information on the personal bank accounts of certain people.

BPK said that disclosing such information would violate the banking secrecy code. (rei)