Is Sjahril compromised?

We still don't want to believe that Bank Indonesia's Governor Sjahril Sabirin could be politically pressured to compromise his legal opinion on such an important issue as the alleged Rp 550 billion (US$80 million) pillage of Bank Bali. After all, his institution is now supposed to be politically independent and fully autonomous thanks to the new central bank law.

However, Sjahril's contradictory statements over the last two days about the suspected scam related to the reimbursement of Bank Bali's interbank loans have led us into great doubt over the autonomy and integrity of the central bank.

Sjahril asserted on Tuesday that no third-party services are needed to collect interbank loans from closed banks under the government's blanket guarantee on bank deposits and claims, and promised to investigate the alleged scandal. Sjahril confirmed that Rp 904.6 billion, the portion of Bank Bali's claims of interbank loans that was assessed as eligible for the guarantee scheme, had been paid directly to the bank in early June without the mediation of a third party.

It could be inferred from the official explanations that collecting interbank loans from IBRA under the government guarantee scheme is similar to settling claims at an insurance company or under the U.S. Deposit Insurance Scheme. The major difference is that the U.S. scheme limits the category and value of claims it insures while the Indonesian program is a blanket guarantee covering almost all claims, except those of the bank owners themselves.

Bank Bali therefore should not have used a broker or a factoring company, because its claims were not accounts receivable or debts as commonly known under standard business practices. If, for example, Bank Bali's interbank credits did not fulfill the terms of the guarantee scheme, its claims for reimbursement would have been turned down outrightly. It is as simple as that. No other parties or brokers would be able to make the loans eligible for reimbursement under the guarantee scheme.

But the same central bank governor practically ate his own words on Wednesday, saying that Bank Bali's method of collecting its interbank loans was a normal business practice. Sjahril even endorsed the intermediation service provided to Bank Bali by Setya Novanto, the owner of PT Era Giat Prima, as a kind of factoring service.

Novanto, also deputy treasurer of the ruling Golkar party, asserted on Tuesday it was his company that collected the bad loans from the Indonesian Bank Restructuring Agency on the basis of a cession agreement concluded in January with Bank Bali's president, Rudy Ramli. He acknowledged he had received commission for the "debt collection service" but declined to comment whether the amount was Rp 550 billion, as allegedly paid by Bank Bali, which is more than 60 percent of the Rp 904.6 billion in collected debt.

Novanto said Ramli came to him because the bank chief, who did not know the technicalities of the government's guarantee on bank deposits and claims, was having great difficulty collecting the loans. Novanto even congratulated himself for the great service his company provided for Bank Bali, saying that it took a lot of time and a great deal of effort to collect interbank loans from IBRA.

The perplexing question then is why Ramli had to ask for assistance from Novanto. If Bank Bali's claims on interbank loans did not meet the terms of the guarantee scheme, how could Novanto's intervention have made the claims eligible for reimbursement by IBRA, unless some officials at the central bank or at IBRA colluded to bend the reimbursement rules. Indeed, one finds it hard to ignore the smell of collusion and political influence-peddling here.

It is similarly hard to accept that Ramli, who received an MBA from the University of Southern California in 1983 and has clocked working experience at foreign banks in San Francisco and New York, could not understand the procedures for collecting interbank loans under the guarantee scheme. Furthermore, Bank Bali, the sixth-largest private national bank in Indonesia as of last December, must have competent lawyers in its staff. In fact, J.B. Sumarlin, who in the past held several Cabinet portfolios, including that of finance minister, sat at the bank's board of supervisors (commissioners) until its takeover on July 23 by the central bank.

More dumbfounding was how IBRA, which is in charge of settling all bank claims under the guarantee scheme and is assisted by a large number of foreign consultants, could have failed to detect the scam. The agency should have smelled something wrong when PT Era Giat Prima, supposedly an unknown entity, as it was set up only last August, came to collect Bank Bali's interbank loans.

Still flabbergasting is why the procedures for the reimbursement of interbank claims from closed banks, which are now under IBRA control, were made so complex and opaque and designed in such vague terms as to provide discretionary power to IBRA and central bank officials.

IBRA and the central bank have a lot of explaining to do. Most importantly, investigations into the alleged scam must be perceived to be credible and objective and results should be announced promptly, otherwise the credibility of the whole bank restructuring program will be in doubt.