Making sense of the Bank Bali scandal

Making sense of the Bank Bali scandal

By Christopher Lingle

HONG KONG (JP): The importance of public and international
reaction to the Bank Bali scandal should not be underestimated.
Domestic market stability and reliable government bodies are
crucial components for Indonesia's recovery from the economic
crisis. Steps must be taken to rebuild investor confidence.

It is indisputable that the likely malfeasance involving
managers of Bank Bali, the Indonesian Bank Restructuring Agency
(IBRA), Indonesia's central bank and the ruling party (Golkar)
has done serious damage. Initially, the value of the rupiah was
driven sharply down before experiencing a substantial rebound.
Yet even the partial recovery was little comfort because it is
only part of the added volatility, caused by the scandal, that
will make potential investors more nervous.

And so it appears that corruption, collusion and nepotism
(KKN) is still alive and well in Indonesia. With a top IBRA
official under police investigation for his role in the scandal,
as well as the head of the chairman being clamored for, IBRA's
credibility has been severely damaged. Its role is to oversee the
failed banks and their assets. Through its control of businesses
worth nearly 20 percent of Indonesia's Gross Domestic Product,
IBRA has become a dominant shareholder in Indonesia's overall
economy.

It has been established that Bank Bali paid Rp 546 billion
rupiah (well over US$70 million) as a commission fee in
recovering Rp 904 billion to a consulting company that is partly
owned by Golkar's vice treasurer. This facilitation fee occurred
even though the debt was covered by a government guarantee.

Disregarding the question of the use of a third party to
recoup funds that should have been handed over by IBRA, the fact
that the fee constituted about nearly 60 percent of the
outstanding debt implies serious indiscretions by the Bank Bali
managers.

In response to the publicity and flurry of accusations, the
money has been repaid and is now held jointly by Bank Bali and
the Bank of Indonesia, the central bank.

It is not surprising that with so many people with so much egg
on their face that recriminations have been flying fast and
furious. Indonesia's media continues to report suspicions that
the funds were siphoned off to fund President Habibie's election
campaign.

This has been supported by news of an internal rift that has
apparently opened within Golkar. Other members have accused its
deputy chairman, Marzuki Darusman, of leaking details of the
affair.

Officials of the party that won a plurality in the June
elections (Indonesian Democratic Party of Struggle -- PDI
Perjuangan) have promised to provide indisputable evidence of the
involvement of various high-level government officials in the
scandal.

Apparently they are in possession of records wherein former
Bank Bali president Rudy Ramli implicates one of President B.J.
Habibie's younger brothers, four Cabinet ministers, two ruling
Golkar party leaders and five businessmen.

Now members of Golkar and the United Development Party (PPP)
faction have called for the resignation of Minister of Finance
Bambang Subianto and IBRA chairman Glenn S. Yusuf. There have
been some suggestions that Bank Indonesia Governor Sjahril
Sabirin might also become a casualty.

Of course, the opposition parties are engaging in a certain
amount of opportunism, although it is hard to fault their
criticism or their due diligence in demanding corrective actions.

In any event, accusation and recriminations are flying,
indicating that many different parties realize that they must
undertake damage control. Unfortunately, most of the noise is
about protecting their own positions rather than calling for
resolute actions to salvage Indonesia's tarnished reputation.

Then there are the various factions in Golkar. Apparently,
some hope to weaken B.J. Habibie's hopes for election to the
nation's top office in November. Others may be hoping to replace
the finance minister and IBRA chair with other, more malleable
people, so as to continue business as usual.

Whereas the various international agencies might have helped
put an end to the childish rounds of squabbling, they also have
egg all over their faces and are pointing fingers. The World
Bank, IMF and Asian Development Bank have scrambled to cover up
their embarrassment over their role in heaping praise on many of
the same actors and organizations that are currently being
vilified.

All the parties must understand that the whole world is
watching and waiting for the real leaders to emerge. While this
is important for any hope for external parties to aid with
recovery, Indonesian voters have been newly emboldened by their
experiment in democracy and will remember who acted to serve
their own ends and who acted in the best interests of the
country.

The writer is an independent corporate consultant and adjunct
scholar of the Center for Independent Studies in Sydney. His
e-mail address is: CRL@po.cwru.edu.