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Bank closures a good sign

Sydney Morning Herald - November 4, 1997

Louise Williams, Jakarta – Mobs of angry customers and employees gathered outside the branches of Indonesia's 16 liquidated banks yesterday, many refusing to believe they had lost most of their savings under the first reforms of the massive $US38 billion dollar ($54 billion) international bailout package.

The rupiah rebounded strongly yesterday morning on news of the bank closures, which analysts said was a sign that the Soeharto Government was serious about a shake-out in the over-supplied and under-capitalised banking industry. But the first victims of the reforms were devastated. Some got together to prepare legal action, others planned demonstrations, but most waited hopelessly for some news from the banks' directors. In Bandung, police reported that one closed bank was stoned, and in other provincial towns they were called to move customers away from the buildings.

"This is a very bad news day for ordinary Indonesian people, the people with only small accounts," one customer said.

The Government has promised payouts of up to 20 million rupiah ($7,900) for each small depositor, but frustrated customers outside the headquarters of the closed Bank Harapan Santosa (BHS) said they would still lose most of their life savings.

"I put my money in this bank because it is ranked 11th, out of 240, so I thought it must be safe. I want to know what is happening, but we aren't told anything," said Mr Pak Rudi, who had been waiting since early yesterday morning.

He said he had moved more than 200 million rupiah into the BHS, which has more than 50 branches, when they offered interest rates of around 40 per cent on large deposits, several points above their competitors.

Tens of thousands of bank employees are also unlikely to be able to find new jobs during the current economic slowdown.

The rupiah, which rebounded yesterday morning to 3,260 against the US dollar, from 3,600 on Friday, has been steadily declining – since trading banks were removed in August – from 2,400 to the US dollar.

Much of the new confidence reflects the massive capital injection the rescue package promises and which will allow the Central Bank to use its reserves to boost the currency and lighten the burden on companies with large US dollar debts. However, economists remained cautious about the package and said further details were needed. "The Government has finally sought the medical attention of a doctor. Now it depends on whether we follow the doctor and take the medicine or not," an economist, Mr Anwar Nasution, said.

An editorial in The Observer newspaper said: "The size of the reform package for Indonesia is a clear indication that contrary to general expectations Indonesia's economic position is in worse shape than that of Thailand."

The Jakarta stock market gained ground early, but confidence slipped back by lunchtime to leave stocks only 1.1 per cent ahead.

The Finance Minister, Mar'ie Muhammad, announced details of further reforms under the package yesterday. These included an end to garlic, wheat, wheat flour and soybean import monopolies. However, monopolies remain on rice and sugar as well as the distribution of wheat flour to industry and consumers. The biggest consumers of wheat flour are noodle manufacturers with close links to the Soeharto Government.

Price controls on cement, previously sold above world prices, have been abandoned and some import tariffs have been reduced and foreign investment regulations relaxed to allow foreign investors greater access to the domestic market.

Little fish caught while big players just cash in their less valuable chips

Comment by David Jenkins, Asia Editor

The list of those associated with the 16 Indonesian private banks that have been forced into liquidation reads at times like a glittering who's who of the Jakarta business and social elite.

But while many Indonesians will welcome the fact that even those at the top of the heap are being asked to make a few sacrifices, it is hard to escape the feeling that the bigger players on the national Monopoly board are simply cashing in their smaller, less valuable chips.

Among those involved in the banking drama are prominent members of the Soeharto family and some of the nation's most powerful ethnic Chinese businessmen.

All look set to survive the harsh - and long-overdue - medicine that has been prescribed for the Indonesian banking system under a $US23 billion ($32 billion) rescue package, the second-biggest in history.

But the crackdown on some of the more notorious examples of "rent-seeking", not least in flour-milling, is bound to cut deeply into the profits once generated so effortlessly by well-connected individuals and crony businessmen.

Bank Andromeda, one of the 16 institutions forced into liquidation under the IMF bailout, is jointly owned by the ethnic Chinese timber baron Prajogo Pangestu (50 per cent), Bambang Trihatmodjo, President Soeharto's second son (25 per cent) and Henry Pribadi (25 per cent), another prominent ethnic Chinese businessman.

But Andromeda is hardly the jewel in the crown of Prajogo, the son of a West Kalimantan rubber tapper. Prajogo is associated with Bambang (and Henry Pribadi) in the $US1.6 billion Chandra Asri petrochemical project. He is associated with Siti Hardijanti Rukmana (Tutut), the eldest daughter of President Soeharto, in a vast sugar plantation in Sulawesi. He also brought Tutut in on his $US1.2 billion pulp and paper plant in Sumatra.

Nor is that the end of the spider's web of connections that bind Indonesia's political and business community so tightly - and so profitably - together.

Henry Pribadi is the president of the Napan group, which has close links with Liem Sioe Liong, a Chinese immigrant who established himself as South-East Asia's wealthiest businessman on the back of his links with President Soeharto.

Liem, in turn, is the dominant shareholder in Bank Central Asia, Indonesia's largest private bank, which has not been touched. Tutut, together with her brother Sigit, the president's eldest son, holds 32 per cent of the shares in BCA.

Bank Harapan Sentosa (BHS), another of the institutions forced into liquidation, is headed by Hendra Rahardja, an ethnic Chinese businessman from Sulawesi who began his career selling motorcycles. His well-connected younger brother, Eddy Tanzil, who escaped from jail in mysterious circumstances a few years ago, was a business partner of President Soeharto's youngest son, Hutomo Mandala Putra, or Tommy.

Ibnu Harjanto, a brother of the late Madame Soeharto, was a senior member of BHS. Probosutedjo, a half brother of President Soeharto, is a part-owner of Bank Jakarta, which has also been closed.

Bank Industri, another of the failed institutions, is headed by businessman Hashim Djojohadikusumo. Hashim is the son of Professor Sumitro Djojohadikusumo, the doyen of Indonesian economists, and the brother of Major General Prabowo Subianto, the powerful red beret commander, who is married to President Soeharto's daughter Titiek.

Bank Industri will not be a major loss to the Djojohadikusumo family, which has an interest in a half a dozen other, and mostly larger, banks.

Bank Pacific, another of the banks to hit the wall, was established by Lieutenant-General Ibnu Sutowo, the free-wheeling former head of Pertamina, the state oil company. General Sutowo's once-close relationship with Soeharto came under strain in the mid-1970s when it was revealed that Pertamina was on the verge of bankruptcy, with debts of $US10 billion.

Another of the failed institutions, Bank Pinaesaan, is part of the Indauda Group, run by the Eman family of Menado, in North Sulawesi. Indauda is a joint partner in Indonesia's controversial national car project, along with Tommy Soeharto and the crippled Kia Motor group of South Korea.

"It seems to be a very gradual dismantling of the monopolies," says Dr George Aditjondro, a South-East Asia specialist at the University of Newcastle, "starting from the periphery and then slowly moving to the core. The banks they are closing down are the smaller banks."