World Bank to conduct IBRA review following bank scandal

World Bank to conduct IBRA review following bank scandal

WASHINGTON (Dow Jones): The World Bank is working with the
Indonesian government to conduct an audit of the Indonesian Bank
Restructuring Agency's operational structure amid a mounting
furor over a banking scandal.

Jonathan Fiechter, director of special financial operations at
the World Bank, told reporters in Washington Friday the audit
will review IBRA's operating systems to ensure that the fraud
scandal surrounding PT Bank Bali is "less likely to happen
again."

The audit follows a separate investigation by Pricewaterhouse
Coopers that reviewed the events surrounding a payment of around
$80 million by Bank Bali to a firm connected to the ruling Golkar
party. Although it commissioned that report, the Indonesian
government has refused to make its full contents public,
attracting criticism from the International Monetary Fund and the
World Bank in the process.

Both institutions have responded to the scandal by suspending
financial aid to the government.

Speaking on the sidelines of the IMF and World Bank's annual
meetings, Fiechter said the IBRA review would determine whether a
"complete overhaul" of the agency was necessary. The Bank has put
the assignment out to tender and, although he couldn't name the
bidders, he said the "nature of the problem is such that it will
be one of the internationally known firms."

Fiechter added that the government has said it would like to
"short-circuit" the bidding process to bring forward the review
but that the Bank needs to ensure that its guidelines for
procurement are met.

Separately, Fiechter expressed support for Glen Yusuf, IBRA's
embattled chairman, and argued that a change of leadership at the
agency would set back the important process of bank restructuring
in Indonesia.

Speaking generally about his unit's bank restructuring work in
South Korea, Thailand and Indonesia, Fiechter said the Bank's
work is made harder if, after building a working relationship
with its "counterparties" in the respective governments, those
people are then replaced with other officials. He described Yusuf
as competent and cooperative.

Indonesia's House of Representatives demanded Friday that
Yusuf be suspended, along with six other officials, including
Finance Minister Bambang Subianto and Central Bank Governor
Sjahril Sabirin, and called for an investigation into their
involvement in the Bank Bali scandal.

Fiechter also acknowledged that the Bank Bali scandal was a
setback in IBRA's plans to start selling some of enormous
portfolio of corporate and banking assets it currently holds on
its books.

IBRA has set itself a target of Rp 17 trillion (about US$2
billion at current rate) in asset sales this year . But with the
Indonesian rupiah having plunged sharply in response to the
scandal and to an international crisis triggered by violence in
the province of East Timor this month, analysts say that target
is looking increasingly out of reach.

The total cost of IBRA's program to recapitalize the banking
sector is estimated at $85 billion, or 20 percent of the
country's gross domestic product.

With such a large task ahead of it, IBRA's restructuring
program will be an extremely long process, Fiechter said. Noting
that it took the U.S. Resolution Trust Corp. 7 to 8 years to
fully dispose of the assets it acquired during the savings and
loan crisis in the 1980s, he said "I would think it will take at
least as long for Indonesia to work through the problems."

By comparison, the RTC's costs came to just 0.5 percent of
U.S. GDP, Fiechter said.