Is Sjahril compromised?

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.