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AUGUST 23-30, 1999 VOL. 154 NO. 7/8

Who Guards the Guards?
The organization created to clean up corporate Indonesia is itself tainted by a corruption scandal
By ERIC ELLIS Singapore

Every time Christovita Wiloto sits down at his computer, the 30-year-old banker is reminded of how tough his job is. His screensaver depicts hungry sharks circling their prey--a wry metaphor for the Indonesian Bank Restructuring Agency. Until recently, IBRA was a rare fish in Indonesia, an institution seemingly free of corruption and symbolic of a new, more professional Indonesian way of doing business. Its team of savvy young lawyers and bankers was re-shaping the country's shattered economy with a patriotic probity that won admiration at home and abroad. "We pride ourselves on our integrity," Wiloto says. "If we don't have integrity and the confidence of the people, then what do we have?"

That question took on a poignant significance last week following embarrassing revelations of a backroom deal that smacked of the crony culture IBRA aims to cleanse. IBRA deputy chairman Pande Lubis was suspended from duties after being accused of helping siphon funds from an institution under his care, PT Bank Bali. The money--some $77 million--ended up at PT Era Giat Prima, a company controlled by a senior official in the ruling Golkar party. The 59-year-old Lubis, an associate of senior Golkar officials, including President B.J. Habibie, allegedly arranged a cash transfer from Bank Bali, a bank under IBRA's care, to another stricken bank via "intermediaries." That middlemen should even be present in an everyday interbank transaction was strange enough. But when a Jakarta banking analyst, Pradjoto, revealed that a huge "commission" for the transfer was paid to a company linked to Setya Novanto, Golkar's deputy treasurer, the implication was clear--IBRA funds may have financed Golkar's recent parliamentary election campaign. The party insists it is innocent. "It was a pure business deal which Golkar has nothing to do with," says party chairman Akbar Tanjung. "We are ready to be investigated."

The disclosures unsettled international investors, who had hoped that IBRA would lead Indonesia's economic renaissance. The rupiah lost 12% of its value last week, the Jakarta stock market half that. Meanwhile, work inside IBRA has been paralyzed by a series of investigations into the affair. IBRA's apparent stumble gives ammunition to unscrupulous businessmen whose cosy cartels were threatened by the agency's previous work. It's also a sad reminder for Indonesians of how hard it is to rid corruption from their country's rotten corporate culture.

This isn't how things were meant to be. After it was set up in early 1998 as a condition of a $42 billion International Monetary Fund bailout, IBRA earned the respect of many skeptics as proof that real change was underway. The IMF was pleased, too, calling IBRA's job--to get bankrupt Indonesian banks back on their feet--a "life and death matter" for the economy.

If it were a company, IBRA would easily be Indonesia's biggest. It controls $85 billion in assets--20% of the country's GDP--and not just banks, but also holdings pledged for bad loans: major stakes in businesses like Indofood, the world's largest noodle manufacturer, carmakers, hotels and property--even Suharto friend Bob Hasan's private plane. And it's all for sale, with the pressure to raise funds intensifying as Indonesia's next budget draws nearer.

IBRA has an Indonesians-first divestment policy though few buyers at home, which would make it a happy hunting ground for foreigners--if they could trust the system. But not many foreign deals have been concluded--one of the biggest so far is Standard Chartered Bank's conditional purchase of a stake in Bank Bali in April. Foreign investors complain IBRA doesn't move fast enough, while some Indonesians accuse the agency of selling national treasures.

Still, the agency seemed to be getting some good work done. On Aug. 2, IBRA's 18 months of hard work paid off with the national debut of Bank Mandiri, a superbank of 530 branches hewn from four failures. Mandiri's snazzy outlets might look like Scandinavian furniture stores, but its real achievement is less visible: only one director of the four original banks sits on Mandiri's board.

Ironically, it was a new transparency in the system that unearthed the scandal. Standard Chartered's auditors were poring over Bank Bali's books when they discovered the $77 million hole. IBRA deputy chairman Arwin Rasyid admits the agency faces "huge pressure from influential politicians. With the wealth and assets we're holding, no wonder many parties try eagerly to take advantage." The sharks on Christovita Wiloto's screensaver are real. Arwin says the Bank Bali affair "is an acid test of IBRA's professionalism." But in an Indonesia desperate for change, there's a lot more at stake than reputations.

This edition's table of contents

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