New York – The International Monetary Fund Friday issued a blunt warning to the Indonesian government to quickly get to the bottom of a scandal involving PT Bank Bali and a senior official of the ruling Golkar party.
An IMF spokesman said Friday that a full investigation, backed by independent auditors, will be essential to preventing further deterioration of investor confidence at home and abroad.
In an effort to quickly acknowledge the gravity of the matter, Bank Indonesia – the country's central bank – said it will take much of the responsibility for the scandal.
The Indonesian Bank Restructuring Agency – charged with overhauling the nation's financial sector – has said Bank Bali transferred 546 billion rupiah (around $70 million) in June to PT Era Giat Prima, a private company controlled by a deputy treasurer of the Golkar party.
The secret transfer was uncovered by Standard Chartered Bank PLC during a three-month due diligence investigation preceding its planned acquisition of a 20% stake in Bank Bali.
That deal, and the future of private sector involvement in the restructuring of Indonesia's teetering bank sector, is now seen at grave risk by some analysts.
The IMF signaled it is taking the Bank Bali incident very seriously and is particularly concerned about the degree of government involvement in the scandal.
"The IMF is extremely concerned about recent reports alleging irregularities in a transaction involving the IBRA, Bank Indonesia and a private bank," the IMF spokesman said.
"The decision by IBRA to launch a speedy investigation into the transaction and to publish its findings is absolutely necessary to bring this matter to a close," he said.
"We expect the investigation to be concluded in a matter of days. We also fully support the appointment of an international auditing firm to validate the findings of the investigation," the spokesman said.
"Anything short of this will further damage domestic and international investor confidence. The IMF will continue to work with the relevant authorities to deal rapidly and vigorously with this matter," he added.
An IMF mission isn't due to return for a regular review of the Indonesia economy and government policies until September following the disbursement of a $460-million installment to Jakarta at the beginning of August.
Another loan tranche due from the IMF under the $43-billion international rescue package arranged for Indonesia in November 1997 is due in October.
Relations between the IMF and Jakarta have been rocky since the IMF organized that bail-out. The Indonesia government initially dragged its feet in adopting a number of monetary and fiscal policies advocated by the Fund and it frustrated IMF officials by stonewalling their demands to completely restructure the banking sector, closing insolvent banks and recapitalizing those that can be saved.
Progress on most areas of concern has been made in 1999, leading the IMF to increase the amount of funds it will make available to Indonesia by a further $1 billion to $12.3 billion. But the latest scandal, coming at the conclusion of national elections and with a presidential poll looming, has again dismayed IMF management.