Snapshot of Indonesia's Banking crisis , without the IMF and
foreign investments , this country could be the next to
disintigrate .
Along with terrorists , scammers and thieves of the world should be the next to be exposed , (whether they worship Allah or not )
Indonesia's crisis-banking scandal rises again
JAKARTA - The International Monetary Fund (IMF) has come and gone once again, in the latest of a long series of forays to Jakarta. The government and the IMF mission, led by the Fund's senior adviser for the Asia-Pacific Daniel Citrin, on Tuesdasy agreed on a draft of the country's fourth Letter of Intent (LoI), which outlines the government economic targets and reform programs for next year, although the draft of the LoI has yet to be unveiled to the public.
The LoI, like those before it, sets out a package of economic targets and reform programs that must be achieved and implemented by the government within a certain time period to qualify for further loans under the IMF program. The government confidently expects the IMF to make the next loan disbursement later this year, but Indonesia has so far received only US$1.2 billion out of the $5 billion loan program agreed upon in late 1999.
Reliable sources say targets set in this LoI, and agreed for 2002, are growth of 3-4 percent, inflation at 9-10 percent and a hoped-for Rp42.5 trillion ($4 billion) in proceeds from the sale of assets under the Indonesian Bank Restructuring Agency (IBRA).
However, the reported inclusion of one particular item in the LoI has startled Indonesian analysts. Bank Indonesia (BI) internal finance director Bun Bunan Hutapea said the IMF and the government had agreed to appoint an independent consultant to conduct a new investigation into the alleged misuse of massive amounts of money in BI emergency loans. This is the central bank's infamous liquidity support, Rp144.5 trillion (around $14 billion), to 48 private banks at the peak of the 1997 financial crisis. Two investigations have been carried out, neither of which resulted in prosecutions or the repayment of the loans.
A new IMF-forced probe, if implemented, could well cost the government a small fortune in compensation for bank owners who have legal sanctity under IBRA's Master of Settlement and Acquisition Agreements (MSAA). The MSAA was a political compromise reached by the weak Wahid administration, urged on then by Rizal Ramli, the coordinating minister for the economy. To repay the loans, bank owners surrendered a mishmash of assets to IBRA and, which was the whole point, in return received protection from the past and guaranteed rights.
This golden opportunity for the Megawati administration to bolster public confidence in the government, and to face up to legal reforms, is, alas, very likely to pass by, and hopes that the IMF had encouraged or persuaded the government to be serious about corruption, a major reason for poor foreign investor confidence, may be unfounded.
The IMF team had just departed Indonesian shores when Finance Minister Budiono popped up on Wednesday to say that the plan to appoint an independent auditor was only meant to calculate the burdens that the government and the central bank each had to bear. Various spokesmen for the Finance Ministry are also promoting a message to the Indonesian media that the job of the independent consultant this time around will be simply to propose how much the government and the central bank must each pay to write off the debts forever.
By Thursday, Bank Indonesia governor Sjahril Sabirin was saying that the government, the central bank and the House should strive for a "consensus" to settle the BLBI case.
The BLBI Settlement Team, which consists of the government, BI and the House of Representatives (DPR), therefore decided the central bank was responsible for Rp24.5 trillion of the funding. BI will still have capital of Rp2.5 trillion, higher than the Rp2 trillion minimum required capital stipulated by the law regarding Bank Indonesia.
Clearly, Sjahril, as governor of the central bank in February 1998 when banks were given the loans, is wide open to legal action and cannot absolve himself from this responsibility. He is, in fact, still undergoing a long trial process in respect of this responsibility amid allegations of criminal negligence. He himself reckons that the government should be responsible for Bank Indonesia's Liquidity Fund (BLBI). "Actually, I have said from the very beginning that BLBI was the government's policy," he told reporters recently.
BI has said that it could only afford to pay this agreed Rp24 trillion of the Rp138.4 trillion that went missing under its stewardship. Without the government shouldering some of the burden, the central bank could face bankruptcy.
However, a real and meaningful probe and follow-up now, which forced debtors to transfer more assets despite the MSAA, would result in a flood of claims from outraged debtors. This would make Jakarta lawyers richer and the government poorer. Any interference with the MSAA would also disrupt IBRA's asset-sales program, putting its revenue target at further risk, and impacting on the need to plug the state budget deficit.
As the lender of last resort, Bank Indonesia channeled the loans to these banks to avoid a systemic collapse in the banking sector, but an investigative audit conducted by the Supreme Audit Agency (BPK), and international auditors KPMG, showed that all the Rp138.4 trillion (the total in 1997 before interest costs to the present time) had been misused. About Rp100 trillion was misappropriated by banks owned by powerful businessmen close to former president Suharto and to Suharto family members themselves.
The loan facilities were only meant to help those banks facing massive runs, but to the owners it was sheer manna from heaven. Much of the largesse sent by the central bank supported speculation on the weak and intensely volatile rupiah, and other owners used the money to buy assets and to lend to affiliated businesses. Some bank owners even reprocessed this taxpayers' money in the interbank market.
The government later issued bonds, which Bank Indonesia took over in exchange for lending the massive loans on its books. Just servicing the interest payments on these bonds alone has put an enormous strain on the state budget, and crippled the government's spending ability.
BPK also blamed Bank Indonesia for neglecting its own rules and for the slack supervision that led to the vast abuse of the state funds. "This amount [Rp144.5 trillion] has now become the state debt to the central bank with an annual interest of 3 percent," the BPK report said, adding that none of the banks had thus far returned the loans.
Most of the loans were channeled to the cash-strapped banks before BI had obtained its independent status in May 1999 through the Central Bank Law, but BI actually extended the loans while it was under the IMF's direct supervision. There is no record of the IMF having commented on this, but it is indicative of the arrogance of BI then. Throwing caution, and any idea of risk management, to the wind, Bank Indonesia extended the loans without any collateral from the borrowing banks.
Previous president Abdurrahman Wahid, oddly enough with the support of legislators, had pushed hard for an amendment to the central-bank law that would have allowed them to replace the then board of governors, seen as most responsible for the loan scam. But the IMF resisted this, arguing that the move would undermine Bank Indonesia's hard-won independence.
Dorodjatun Kuntjoro-Jakti, coordinating minister for economic affairs, Finance Minister Budiono and BI governor Sabirin were the three signatories, on behalf of the government, to a "Memorandum of Economic and Financial Policies" addressed to the IMF two weeks after Megawati Sukarnoputri had risen to the presidency. Nowhere in this detailed document is there a reference to the BLBI issue. Is this indicative of Jakarta's stance on any reopening of the probe into the corruptors themselves, rather than an enormously expensive exercise to decide who pays for what? In the end, it is all paid by Indonesians themselves, poor or rich.
The IMF always threatens to suspend its loan program if Indonesia misses LoI targets it has committed to. Many Indonesian legislators believed this was an idle threat, but in fact last year the IMF did indeed withhold last year's loan tranche worth $400 million. This was because of delay by the Wahid administration in implementing certain reforms. Now, this year, and with a new administration, Indonesia is being forced to face up to the need to deliver what it promises, but this is all for the sake of the same $400 million.
The stakes, however, may be much higher, with the foreign investment community ready to write off Indonesia for a long time if the new administration fails to carry out its pledges. Also, the ensuing absence of foreign investment would starve Indonesia of the capital needed to spur economic growth. The national debt, including corporate foreign debt, is already more than 100 percent of the gross domestic product (GDP) and foreign investment is the only real hope for a better future.
The main obstacle to this investment is the disastrous image of Indonesia's legal system, and the hastily implemented new autonomy laws, in the transition from central government to regional autonomy, have made the situation even worse this year.
Reinvigoration of a moribund economy will not take place without the presence of a large volume of quality foreign investment. Management systems, business strategies, technology transfer and growth-focused development are the advantages these investors will bring for Indonesia and Indonesians. Such would be a much rosier scenario for the welfare of the country and its workers than the dominance of conglomerates, and the corruption, collusion and nepotism of the Suharto era, including those who abused the Rp144.5 trillion in BLBI money, which is still exacting its toll on Indonesia.
This revival of the Indonesian economy is what's at stake, but it remains as elusive as ever, with the majority of activity in Jakarta seemingly geared toward securing further borrowing.
Even assuming that the beginning of disintegration is not just around the corner, there are real fears now that Indonesia may lose the battle and, some time down the line, renege on its sovereign debt with incalculable consequences.
IMF involvement is pivotal to maintain international creditors' commitment to the country, let alone investors' confidence. Failing to deliver the specified reforms would endanger the chances of a sustainable economic recovery. But the continued deep divisions among the parties stall efforts to address the country's economic woes. The economy and the rupiah are held hostage to the dark and shadowy power-plays going on in the corridors of power. The best intentions of the new administration are inhibited by the real issues preventing progress, the conglomerates and their massive, overdue debts and the long-outstanding resolution of this BLBI case.
Light at the end of the tunnel? Which tunnel? Which light? |
