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.