IMF recognizes failure to oversee bank reform

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)