IMF softens its position toward Bank Bali scandal

IMF softens its position toward Bank Bali scandal

WASHINGTON (Dow Jones): The International Monetary Fund has
softened its stance toward Indonesia slightly in relation to its
demands for a resolution to the Bank Bali scandal, Indonesia's
Deputy Central Bank Governor Miranda Gultom said Wednesday.

Speaking after she attended bilateral meetings between
Indonesian and IMF officials this week, Miranda said the Fund now
"understands" the central bank's argument that it can't release
the full report of a recent audit into the Bank Bali case.

"I think they now have a better of understanding here of what
our positions are at Bank Indonesia," Miranda told Dow Jones
Newswires. "I think they are understanding that there are some
legal issues here" concerning the release of the report by
PricewaterhouseCoopers.

"From what I heard from them, they are now emphasizing their
wish to see some progress made in resolving the Bank Bali case,"
she said. "They also now think, like us, that publishing the full
report, if it were true that the report was not of good quality,
cannot be positive."

IMF Asia-Pacific Director Hubert Neiss was very specific
Tuesday, however, in outlining the Fund's demands during a press
conference. He reiterated the IMF's four main demands relating to
the case: that Indonesia undertake an investigation; that the
investigation's results be made public; that proceedings be
launched against people involved in any illegal acts; and that
measures are taken to ensure there is no recurrence of similar
events.

PricewaterhouseCoopers was commissioned to review the case -
which relates to an US$80 million payment by Bank Bali to a firm
linked to the ruling Golkar Party, ostensibly for the collection
of government-backed debts. However, the government hasn't
released a full report of that audit, which is believed to name
certain government officials.

In a press conference last week, IMF Managing Director Michel
Camdessus called on Indonesia to release the
PricewaterhouseCoopers report.

The IMF has responded to the case by postponing a review of
Indonesia's economy, thereby effectively delaying disbursement of
the next tranche of a $12.1 billion loan.

Miranda argued that Bank Indonesia hasn't the power to release
the report because it is a matter for the government's supreme
audit board, which has refused to make the full contents public.

She said Bank Indonesia officials haven't seen the contents of
the report.

Miranda said speculation that Sjahril Sabirin is guilty of
complicity in the scandal is unfounded and that the House of
Representatives' recent demand that he and six other officials be
suspended to allow an investigation into their roles is an
example of the "scapegoating" risks that lie in publicizing the
report.

Miranda also said that Bank Indonesia made its own inquiries
early in July and August, when it discovered a large discrepancy
in Bank Bali's June 30 accounts, but that, "just as bank
supervisors in any industrialized country would do," the central
bank didn't publicize its own inquiries.

She said the IMF and the World Bank are now encouraging Bank
Indonesia to publicize the fact that it made these early
investigations.

She acknowledged, however, that Bank Indonesia needs "to
improve (its) supervisory capacity, and to train (its)
investigators in terms of the sensitivity of such issues."

Miranda expressed concern that the Bank Bali crisis had had a
"demoralizing" effect on Bank Indonesia staff members and, more
importantly, on members of the Indonesian Bank Restructuring
Agency.

IBRA has been charged with the daunting task of recapitalizing
and restructuring Indonesia's distressed banking sector. The
Agency has set itself a target of selling Rp 17 trillion worth of
corporate assets that it has absorbed as part of the
recapitalization process, but most analysts believe that target
can't now be met, given the sell-off in Indonesian asset markets
since the Bank Bali case arose.

"The bank restructuring and the bank recapitalization program
has to move on" if Indonesia is to make a sustained recovery from
its recent financial crisis, Miranda said. "I think the Fund and
the (World) Bank realize that."

Miranda said Bank Indonesia sees the rupiah's fair value in a
range of Rp 6,000 to Rp 6,500 to the dollar once the Bank Bali
case and the current furore over East Timor subside. Late
Wednesday, the dollar was trading at Rp 8,350.

She also spoke of Indonesia's role as an observer in a meeting
between an East Timorese delegation and prospective official
donors to the former Portuguese province Wednesday. That meeting,
sponsored by the World Bank, was to include the IMF and the Asian
Development Bank, as well as bilateral donors such as Australia,
Portugal and the U.S.

Miranda said Indonesia supported a speedy introduction of
development aid to East Timor after the Indonesian parliament
formally ratifies its independence in a special sitting in
November. "It's in our interests to have a healthy neighbor," she
said.

Indonesia annexed East Timor in 1975 but its forces are
currently withdrawing after violence that followed a referendum
resulting in an overwhelming vote for independence last month.

The violence that ensued after that vote prompted an
international crisis, which eventually led Indonesia to accept
the deployment of international peacekeeping force.