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Web-only Exclusives
November 30, 2000

From Our Correspondent: Hirohito and the War
A conversation with biographer Herbert Bix

From Our Correspondent: A Rough Road Ahead
Bad news for the Philippines - and some others

From Our Correspondent: Making Enemies
Indonesia needs friends. So why is it picking fights?

Asiaweek Time Asia Now Asiaweek story

SEPTEMBER 3, 1999 VOL. 25 NO. 35

The fallout could hobble Indonesia's economy - and its presidency

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.

What is 'Bali-gate'? Just follow the money

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.

This edition's table of contents | Asiaweek home



U.S. secretary of state says China should be 'tolerant'

Philippine government denies Estrada's claim to presidency

Faith, madness, magic mix at sacred Hindu festival

Land mine explosion kills 11 Sri Lankan soldiers

Japan claims StarLink found in U.S. corn sample

Thai party announces first coalition partner


COVER: President Joseph Estrada gives in to the chanting crowds on the streets of Manila and agrees to make room for his Vice President

THAILAND: Twin teenage warriors turn themselves in to Bangkok officials

CHINA: Despite official vilification, hip Chinese dig Lamaist culture

PHOTO ESSAY: Estrada Calls Snap Election

WEB-ONLY INTERVIEW: Jimmy Lai on feeling lucky -- and why he's committed to the island state


COVER: The DoCoMo generation - Japan's leading mobile phone company goes global

Bandwidth Boom: Racing to wire - how underseas cable systems may yet fall short

TAIWAN: Party intrigues add to Chen Shui-bian's woes

JAPAN: Japan's ruling party crushes a rebel at a cost

SINGAPORE: Singaporeans need to have more babies. But success breeds selfishness

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