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.