NOVEMBER 29, 1999 VOL. 154 NO. 21

T I M E  F I N A N C E
Help Wanted?
Foreigners hired to repair Asia's banks face a tough and thankless task
By ERIC ELLIS Jakarta

A career spent managing international banks didn't begin to prepare Milan Shuster for the task of running Indonesia's Bank Danamon. Soon after taking over the crippled institution in March, the 58-year-old chief executive sat down for a corporate strategy meeting. But instead of focusing on standard banking issues like debts, interest rates and reserves, the participants talked mainly about how to protect Danamon's staff from rioting mobs at the bank's front gates. "I've had to pinch myself at some of our meetings," says Shuster, an amiable, mild-mannered Canadian. "Here are men with American M.B.A.s discussing the merits of razor wire in keeping rioters at bay."

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These are not normal times in Southeast Asia's banking world. The financial system is in disrepair following years of flaky management during the boom times and a nasty shakeout precipitated by the 1997 financial bust. Shuster is among a growing posse of foreigners tapped to salvage rotten banks across the region. Loaded up with big salary and share packages, these executive mercenaries are attempting to transform many Asian banks from cozy, crony-ridden basket cases into what Shuster calls "normal" businesses. It's an uphill battle. The foreigners are often grappling with institutions whose levels of sophistication and transparency are far short of international standards. Locals, meanwhile, suddenly must confront sensitive issues of national pride. At stake, too, is the credibility of the governments that have invited foreigners into such a sensitive sector. "Naturally we would like Indonesian buyers for Indonesian banks," says Christovita Wiloto, executive secretary of the Indonesian Bank Restructuring Agency (IBRA). "But we also have to be realistic."

At Danamon, Shuster has to make hard decisions about cutting corporate fat, merging branches and laying off workers--actions long considered unthinkable. IBRA has already injected $3 billion of taxpayer and International Monetary Fund money to help turn the bank around, but much more is needed. The bank had hemorrhaged perhaps $4 billion before Shuster and his team stepped in. "There were some horrible things on this balance sheet," says Shuster. "The checks and balances--inasmuch as there were any--left a lot to be desired."

The restructuring process has been even rougher at scandal-wracked Bank Bali, where IBRA appointed officials from Britain's Standard Chartered Bank to run the show. A July probe uncovered $77 million in missing money that accountants PricewaterhouseCoopers traced to the then-ruling Golkar party, a revelation that helped cost B.J. Habibie the presidency. But StanChart isn't winning many friends for its efforts. Although IBRA had promised to sell StanChart a 20% stake in Bank Bali once it had regained its health, local employees have given the foreigners a hostile welcome, accusing them of racism, carpet-bagging and mistreating the local staff. Facing threats and physical intimidation, the StanChart team had to employ full-time armed bodyguards. Things deteriorated so badly that IBRA stepped in last week to remove StanChart from its role and installed its own people. The bank hopes eventually to reestablish the relationship, but that now appears unlikely. "It's been character-building, to say the least," observes Paul Dowling, a StanChart spokesman.

The Bank Bali affair underlines the potential difficulties in bringing outsiders into an area as critical as the financial system. StanChart and the man leading its team, Douglas Beckett, have unwittingly become symbols of Indonesian discomfort. Context is key: many Indonesians feel a sense of humiliation at having foreigners seemingly dictate everything, from East Timor's political future to the country's future economic development. A barrage of negative local media coverage has helped make Beckett as recognizable a face in Indonesia as, say, Bill Clinton. "The Bank Bali affair hasn't exactly covered Indonesia in glory," says Chris Botsford, director of the Hong Kong-based Asian Debt Management group. "It all depends on IBRA. If they get a clear and unambiguous mandate from this new government, it will be a positive sign that sane voices are prevailing in power."

Thailand's cossetted banking scene is similarly being shaken up by foreigners--but with far less bitterness. Bangkok's Bank of Asia is now 76% owned by ABN AMRO; Thai Danu Bank is half-owned by Singapore's DBS Bank; StanChart has bought 75% of Nakornthon Bank. And even Thailand's banking jewel, the Sophonpanich family's Bangkok Bank, counts among its shareholders the Templeton group and the Singapore government's investment agency. More deals are in the cards. Singapore's United Overseas Bank is close to purchasing a 75% stake in Radanasin Bank, while HSBC is a frontrunner to take control of Bangkok Metropolitan Bank. Thai officials seem to accept the sell-offs as inevitable. "The government has come to the conclusion that there are more benefits than negative impact to opening up to foreign holdings," says Kobsak Chutikul, director general of economic affairs at the Thai Foreign Ministry. "We need the injection of fresh funds." But as Corporate Asia is discovering to its chagrin, fresh funds come with a price.

With reporting by David Liebhold/Bangkok