AW: Bali-gate (WB/IMF)The seedy side of Indon's business turns ugly(fwd)

[Robert Weissman <rob@essential.org>]

ASIAWEEK
September 3, 1999
UNRAVELING BANK BALI
The fallout could hobble Indonesia's economy - and its presidency
By RICARDO SALUDO
FOR HOURS, INDONESIA'S TOP three finance officials sat glumly in front of
TV
cameras, popping flashbulbs and the angry stares of parliament members. On
Aug. 19, legislators had summoned Bank Indonesia Governor Syahril Sabirin,
Finance Minister Bambang Subianto and Indonesian Bank Restructuring Agency
chief Glenn Yusuf to explain the release of some $120 million in funds owed
to Bank Bali, a leading retail institution under IBRA control, by failed
banks also taken over by the agency. The problem: about $72.8 million of
the
money ended up with businessmen linked to the ruling party Golkar.
The cabinet trio's grilling was televised live - for its entire 12 hours.
It
wasn't just Indonesians watching. Also concerned halfway across the world
in
Washington were officials of the International Monetary Fund, which vets
Indonesia's economic policies under its bailout program. In a mid-August
phone call, the IMF's acting managing director Stanley Fischer had
discussed
Bank Bali with President B.J. Habibie, who, according to the Fund, promised
a
full investigation "to bring this matter to a speedy conclusion." On Aug.
17,
Fischer wrote economic czar Ginandjar Kartasasmita, further demanding "that
the audit's scope be widened to include Bank Indonesia," not just IBRA.
 Echoing his boss's line, IMF Asia-Pacific director Hubert Neiss told a
business seminar on Aug. 25: "An unsatisfactory solution [to Bank Bali]
would
be a disaster scenario." He would not say what the Fund might do, but
Asiaweek had learned that earlier this year the IMF had privately
threatened
to stop its loan program - a move that would surely have shot down the
rupiah
- over IBRA's bank closure, takeover and recapitalization plans at the
time.
Whether or not the Fund is again considering closing the money tap, the
World
Bank certainly is. Its Indonesia director Mark Baird warned that it may cut
its support if it was not satisfied with Jakarta's action. The day before,
its East Asia vice president Jean Michel Severino expressed deep concern
and
urged "the process [of resolving the case] be completed as quickly and
transparently as possible . . . and that any wrongdoers be subject to the
full force of the law."
Names of the alleged culprits are in a "banker's diary" circulated at the
televised hearing and apparently written by Bank Bali president-director
Rudy
Ramli. Part of the bank's former controlling family, Ramli brought the
four-page letter to officials of the Indonesian Democratic Party of
Struggle
(PDI-P) headed by Megawati Sukarnoputri, whose protection he had sought. He
alleged meetings with both Golkar-linked businessmen and members of
Habibie's
inner circle, who showed an interest in his bank's money. By the PDI-P's
account, central banker Sabirin, at least three other cabinet members, two
ruling party leaders, five businessmen and one Habibie relative are
directly
involved.
In a country where billion-dollar corruption had long gone unpunished, the
attention given to the Bank Bali case is extraordinary, as are its
revelations. The reasons lie partly in an unique convergence of political
and
economic interests, which have aligned factions in the ruling party with
oppositionists against Habibie's bloc, and pit entrenched interests against
economic reformers. The result is a perfect storm, which has brought
renewed
turbulence to Indonesian politics and threatened the course of its complex
and sensitive banking restructuring. Indeed, says economic consultant Jasso
Winarto, "the scandal will smear Habibie's face. It's no longer possible
for
him to be president."
Events leading to the scandal began quietly. In July, London-based Standard
Chartered Bank, which is negotiating to buy a controlling 20% in Bank Bali,
sent a confidential letter to IBRA. Stanchart said it had uncovered "lack
of
control and questionable transactions" complicating its takeover plan.
These
included some $72.8 million written off from the $120 million in payments
by
IBRA to Bank Bali from the three shuttered institutions.
Days later, with talks between Stanchart and Bank Bali's shareholders
bogged
down, IBRA seized the bank and gave management control to the British. As
IBRA and Stanchart started to look into the irregularities, a local banking
lawyer went public in early August with allegations that the missing $72.8
million went to two Golkar-linked businessmen. They supposedly helped get
powerful officials to pressure IBRA to pay the $120 million.
Ramli is one of a new breed of businessmen cash-strapped amid Indonesia's
economic collapse. To influential officials, they represent a new
opportunity. Among the high-powered bureacrats, says the "banker's diary,"
were figures in the Habibie government and inner circle, such as Supreme
Advisory Council head A.A. Baramuli, State Enterprises Minister Tanri Abeng
and Habibie's businessman younger brother Suyatim "Timmy" Habibie.
Ramli implies that part of the money obtained from him in exchange for
securing his bank's frozen funds went to election donations. No documents
have yet surfaced tracing the Bank Bali cash to Habibie's campaign. Nor is
there evidence that anyone had acted on his orders. Yet his need of funds
to
campaign is easy to see. Money will be decisive in the upcoming close
battle
for the presidency between him and front-runner Megawati in the People's
Consultative Assembly. Even now Habibie's friends need cash to ensure that
Golkar nominates him in November.
The scandal is now very deeply tied into politics. Specifically, into an
increasingly public split between longtime Golkar cadres and Habibie
loyalists. Many resent the increasing domination of Habibie's faction -
including party chair Akbar Tandjung. At the home of Baramuli, one of the
three officials named in the Ramli allegations, 12 provincial Golkar
chapters, mostly from eastern Indonesia, signed a petition on Aug. 12 for
an
extraordinary congress to remove the head of Golkar's parliamentary
faction,
Marzuki Darusman. He is perhaps the most outspoken opponent of Habibie's
candidacy and a suspected source of Bank Bali leaks damaging to the
president.
On Aug. 22, party leaders met at Habibie's house and supposedly settled
their
differences or at least quieted them. But with the presidential election
more
than two months away, chances are high that the splits will resurface. And
more leaks emerge.
The scandal has hit hardest the central bank and IBRA. The bank is
resisting
an outside review; it argues that under the law, only the Supreme Audit
Agency can check its books. That leaves IBRA to take much of the heat. Its
vice chairman was implicated in the scandal; the agency itself has
initiated
an independent audit of its actions. "There are efforts to discredit IBRA,
by
disinformation," says IBRA's Yusuf. "Some may feel threatened and hope or
even try to derail IBRA." Among them are tycoons keen to regain and reopen
their failed banks.
There still remain more possible revelations - and mysteries. Recently, a
German-based company has been buying Bank Bali shares hammered by scandal;
as
of Aug. 25, it held 32%. What is its game plan? Well, whatever it is, if
the
case isn't resolved and the IMF pulls the plug on Indonesia, all bets are
off
- on Bank Bali, Habibie, the rupiah and recovery.
FOLLOW THE MONEY
Asiaweek's guide to 'Bali-gate'
What is 'Bali-gate'?
The scandal involves a $72.8-million payment by Bank Bali to two
businessmen
linked to the Golkar party. In return, the bank hoped to ensure the
recovery
of $120 million owed it by three failed banks. Because interbank loans are
guaranteed by the government, no commission should have been paid. Critics
say much of the funds went into Habibie's re-election war chest.
Why did Bank Bali need the $120 million so desperately?
Back in late 1998 when the saga began, Bank Bali was failing. It needed
$320
million to keep operating. To qualify for a bailout, Bank Bali had to come
up
with 20% of the $320 million by July 22, 1999. Otherwise, IBRA would take
it
over. Rudy Ramli, whose family controlled the bank, was desperate to reduce
its recapitalization burden by reclaiming the $120 million in credits.
 Why didn't Ramli invoke guarantees on debts of failed banks?
Though there were state guarantees on all bank debts and deposits, back in
1998 it was up to failing banks to ask for state funds to cover claims
against them. Bank Bali's debtors had already been suspended and seized by
IBRA, so Ramli was out of luck. In May 1999, IBRA changed the regulations,
allowing creditors like Bank Bali to invoke the guarantee. But by then
Ramli
was already locked into the ill-fated deal with the "brokers."
So how did the alleged scam happen?
 ? January: Bank Bali signs a deal giving ownership of the $120 million in
loans to firms under Joko Chandra and Setya Novanto, Golkar-linked
businessmen, who promise to collect the debt.
 ? February: Bank Indonesia Governor Syahril Sabirin, State Enterprises
Minister Tanri Abeng and Supreme Advisory Council chief A.A. Baramuli,
among
others, allegedly meet with a Bank Bali executive, assuring it an easy ride
in recovery of its credits.
 ? May: Ramli asks Finance Minister Bambang Subianto for his help in
canceling the deal with Chandra and Novanto. Subianto arranges a meeting
with
Habibie associates. But Chandra refuses to cancel the arrangement.
 ? June: Under the new regulations, IBRA approves the release of the $120
million, which Chandra and Novanto control under the deal with Bank Bali.
Ramli deposits $72.8 million into Novanto's account. He and Chandra
disperse
the money among more than 20 accounts, including some linked to a Habibie
man.
 ? July: In discussions with IBRA to buy 20% of Bank Bali, Standard
Chartered
reports irregularities, including the writeoff of $72.8 million of the $120
million received as debt payments.
 ? August: A lawyer discloses that the missing money is in accounts of
businessmen linked to Golkar. The IMF calls for a full investigation,
including the central bank. On Aug. 19, the "commission" payment is
returned
to Bank Bali. IBRA agrees to an independent audit of its actions. MPs
demand
the resignation of Finance Minister Subianto and other officials.