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Soeharto relatives fuel split over banks

Sydney Morning Herald - November 12, 1997

Louise Williams, Jakarta – President Soeharto's half-brother has refused to withdraw a court challenge to bank liquidations which threaten the Internation Monetary Fund's bailout of the Indonesian economy.

Mr Probosutedjo said the Government may have targeted his bank for closure because it did not "spend enough money" currying favour with officials of the Central Bank, and announced he would refuse to sign the liquidation papers.

Mr Probosutedjo's Jakarta Bank was one of 16 shut under the first round of reforms last week to implement the IMF-led economic rescue package.

The refusal of Mr Probosutedjo and Mr Soeharto's son, Bambang Trihatmodjo, another director of a failed bank, to accept the closures is creating a dangerous rift within the first family over economic reforms.

Bambang, who owned a 25 per cent share in the liquidated Andromeda Bank, and Mr Probosutedjo are due to take their challenge to court today.

The legal case has fuelled fears among foreign investors and donor nations that Indonesia's business and political inner circle will not take their share of the pain under the IMF bailout package.

Mr Probosutedjo yesterday accused finance officials of selecting his bank for liquidation because it had not contributed enough money to them. "Bank Jakarta did not have enough pocket money to maintain a relationship with the Central Bank," he said.

This extraordinary public claim follows Bambang's defence of his Andromeda Bank last week, when he admitted it had broken the law by exceeding the legal lending limits, but said so had 90 per cent of Indonesian banks.

The refusal by members of the Soeharto inner circle to share the suffering of the economic crisis with the Indonesian people has been followed by a further stockmarket slide since last week. Analysts said shares lost 2.6 per cent yesterday, and all eyes were on the legal challenge to the bank closures.

Most foreign investors, and the IMF, are looking for clear signs that the economic reforms will be implemented, in particular the shake-out in the under-capitalised banking sector. The $US38 billion bailout package is the second-largest ever put together by the fund, and follows a 35 per cent depreciation in the rupiah and similar losses on the Indonesian stockmarket.

The target of the legal cases, the Finance Minister, Mr Mar'ie Muhammad, announced yesterday that the Government would not review the bank closures. He said all 16 banks had insufficient assets to cover their liabilities, mainly because of significant bad debts.

The Ministry for Manpower said yesterday about 50 companies had applied for permission to lay off 10,000 workers, on top of about 6,000 bank staff who lost their jobs with the closures last week.

This latest request reflects the inevitable rise in unemployment as the economy contracts. A Government official said the jobs would be lost in the textiles, shoes and plywood industries.

The Indonesian Contractors Association says about two million day labourers have been laid off in the construction industry in Jakarta alone.

The bank cases are taking on increasingly political overtones, with opposition groups seeing the complaints of Mr Probosutedjo and Bambang as symptomatic of a system which has one set of rules for the rich and powerful and another for the poor.

Analysts said they had hoped the legal cases would be withdrawn yesterday, as senior IMF officials arrived in Jakarta for meetings with the Soeharto Government. Economists have blamed the legal challenges for the slide in the rupiah.

The Minister for Transmigration, Mr Siswono Yudohusodo, a Cabinet minister and prominent businessman, said: "Personally, I hope they will consider the greater interest of the country and drop their lawsuits. By doing so they would boost public confidence in the rupiah."

Australian firms told it pays to stick with Jakarta

Australian companies would be "very unwise" to pull out of Indonesia, the Minister for Industry, Science and Tourism, Mr Moore, warned here yesterday, saying the country's economic problems were short-term.

"There's a great future here and for any corporation to walk away would be very foolish," Mr Moore said after meeting Indonesian ministers during his three-day visit.

He said he was confident the Indonesian Government was "truly committed" to meet the conditions of the IMF rescue package for its troubled economy, to which Australia has contributed $US1 billion. However, Mr Moore conceded there would be problems. "It would not be the real world to assume Australia will not be impacted by a downturn in greater Asia, not just South-East Asia, but Japan and Korea as well," he said.

"I can't quantify it, we're in the middle of it, it's happening right now."

Mr Moore also conceded that some bilateral projects would be put on hold as the Indonesian Government pursued an austerity budget and reviewed or cancelled a number of major development projects. But if there was any movement away from the IMF package, he said, it would be "very detrimental to the economy".

The Soeharto Government is facing lawsuits from two members of President Soeharto's family over the liquidation of banks of which they are directors, under the first stage of reforms announced last week.