IMF warns of impact of Bank Bali scandal

JAKARTA (JP): International Monetary Fund (IMF) Asia Pacific director Hubert Neiss warned on Wednesday that it would be a disastrous scenario if the government failed to resolve the Bank Bali case satisfactorily.

He said a satisfactory solution was crucial to restore investor confidence in the country's economy and government economic reform program.

"A nonsatisfactory solution would be a disastrous scenario," Neiss told an international seminar on Indonesian economy.

But Neiss refused to answer definitive questions as to whether the Fund would suspend the next disbursement of bailout money to Indonesia if the government handling of the Bank Bali case did not meet its expectation.

"Let's wait and see whether a satisfactory solution will be obtained," he said.

"We'll take firm action if it's necessary," he said in reply to a barrage of similar questions from reporters.

"But the IMF is taking a firm position against corruption. So you may expect firm action from the IMF," Neiss responded in an irritated tone after American economist Paul Krugman, speaking at the same meeting, criticized the IMF for what he saw as a meek stance.

The IMF earlier demanded the government to investigate the case thoroughly and swiftly, make the findings public and take legal action against all wrongdoers.

However, Krugman appeared to take the Fund's stance on the issue as too weak, warning it to act firmly to avoid a Russian- style confidence crisis in Indonesia.

He said that although the IMF had to tread carefully in dealing with the politically related scandal, the Fund must not wait too long to take strong action.

"I think the IMF has to be careful, not in terms of economic comments, but in terms of not taking sides in a political conflict," Krugman said on the sidelines of the seminar.

"But if this goes on for very long, yes (the IMF will have to act firmly) because the IMF cannot afford another Russia," he said, referring to the Fund's much-criticized failure in bailing out Russia due to a massive embezzlement of state funds.

The economic professor of the Massachusetts Institute of Technology has been a staunch critic of the IMF policy in handling the Asian economic crisis.

The World Bank has taken a stronger approach to the government to resolve the Bank Bali case swiftly and satisfactorily.

World Bank country director for Indonesia Mark Baird threatened on Tuesday to halt budgetary support for Indonesia unless the government concluded the investigation into the Bank Bali case swiftly and in a transparent manner.

The high profile scandal centered in the transfer of Rp 546 billion (US$80 million at current rate) in funds from Bank Bali, which is to be recapitalized by the government, to a firm called PT Era Giat Prima (EGP), which is linked to President B.J. Habibie's close associates, including his ministers and younger brother.

Habibie loyalists were accused of trying to raise money to bankroll Habibie's presidential race in November.

Habibie is currently under strong pressure from the public, opposition leaders and even from top executives in his Golkar Party to investigate the case transparently and take legal action against all people involved.

Habibie

Separately, Habibie urged people on Wednesday to wait for the results of an international audit into the case to find out what really happened.

Speaking at a joint news conference in Kuala Lumpur with Malaysian Prime Minister Mahathir Mohamad, Habibie said he was "also anxious to know" whether his Golkar Party was involved in orchestrating the Bank Bali case.

EGP is owned by two businessmen, one of whom is also a deputy treasurer of Golkar.

"People should wait for the audit report to find out what happened," Habibie was quoted by Dow Jones as saying.

Habibie was in Kuala Lumpur for a one-day visit.

The government has appointed Australia's auditor PricewaterhouseCoopers to take part in the investigation of the scandal.

"If it depended on me, the sooner the better," Habibie said.

In a related development, economists and legislators criticized Habibie on Wednesday over the slowness in handling the scandal.

Economist Rizal Ramli of Econit, a private think tank, said: "The investigation has taken more than a month, but the question on who were involved in the scandal remains unanswered."

"The scandal could ruin Habibie the same way former U.S. president Richard Nixon was brought down by the Watergate scandal," he said.

Golkar legislator Paskah Suzetta warned the President that people would take to the street if he ignored the public and international demand for a thorough and satisfactory resolution to the scandal.

"If Habibie ignores the warning, people may take to the street to push their demands," he said.

University of Indonesia economist Sri Mulyani said that it's unavoidable for the World Bank and the IMF to intervene in the scandal because of their important role in rebuilding the country's crisis-hit economy.

Noted economist Sjahrir, who was also a speaker at the above seminar, aired his concern over attempts to cover up the involvement of influential people in the scandal.

"There are aspects of a cover-up ... there's a conspiracy of silence stretching from the President to his lower officials," he said.

"It's goodbye to economic recovery if the government fails to solve the Bank Bali case properly," he added.

Meanwhile, National Police spokesman Brig. Gen. Togar Sianipar said on Wednesday that in order to speed up investigations into the scandal, the police sent necessary documents to the Attorney General's Office almost one week ago to support the request for questioning EGP president Setya Novanto, who is a member of the People's Consultative Assembly (MPR).

"But until today, those documents seem to remain untouched. I do not know what the Attorney General's Office did with the documents," Togar told reporters.

Police are not able to question Setya without prior consent of President Habibie because of his legislative position. (rei/01/ylt)