Michael Richardson, Singapore – Like many other institutions from the rule of former President Suharto of Indonesia, the headquarters of the central bank in Jakarta has an impressive facade.
But behind that facade, a recent government audit found mismanagement, inflated asset values and a mountain of bad debt that had left the central bank insolvent. It also found a web of irregular accounting practices that disguised the bank's weak financial condition.
Bank Indonesia's troubles are symptomatic of an inner crisis in the world's fourth most populous nation, officials and analysts say. They cite a widespread lack of trust by investors and the public in key national institutions, including the government, the bureaucracy, the judiciary, the armed forces, the police and the legislature.
During his 32-year rule, Mr Suharto, who was forced to resign in 1998, became the only functioning government institution, according to Laksamana Sukardi, a long-time critic of the former president's who is now the minister for investment and state- owned enterprises in the reformist government of President Abdurrahman Wahid.
"The Parliament was useless, the economic institutions like the central bank and our Securities and Exchange Commission were Suharto's instruments," Mr Laksamana said.
Indonesia, he said, is living with the consequences on many levels, including "a deep crisis of legitimacy of the Indonesian government," a gross misallocation of resources, a fragile and hollow developmental boom, and a major setback to national pride and identity.
The problems at Bank Indonesia were uncovered by the government's Supreme Audit Agency and the international consulting firm KPMG, which found a gap between the central bank's assets and liabilities; the International Monetary Fund says the discrepancy could be as much as $4.2 billion.
The key challenge for Mr Wahid's government, Mr Laksamana said, is building a new set of rules and practices based on laws, precedent and nondiscrimination instead of on power, connections, and intimidation.
Indeed, many analysts say that building sound institutions is Indonesia's major long-term challenge, assuming the government can successfully manage the sectarian and separatist challenges that threaten to tear the country apart just as the economy appears to be emerging from a two-year recession that devastated banks and companies, and threw millions into poverty and hardship.
Like many Southeast Asian officials, Lee Kwan Yew, Singapore's senior minister, credits Mr Suharto with positive achievements. "But he did not build up institutions," Mr Lee said. "They were all personalized relationships with leaders of various sectors that he appointed. I think the lesson is, you have to have institutions because no man is going to live forever."
Yet in Indonesia's case, effective institutional reform will take years when investors are looking for much quicker results. Charles Himawan, an Indonesian law professor and member of the National Commission on Human Rights, said it could take 10 years to develop a clean judiciary to apply corporate as well as criminal law.
"Many fail to realize that restructuring the financial sector without restructuring the judiciary will end in failure," he said.
"Indonesia is suffering from an institutional vacuum," the Political and Economic Risk Consultancy Ltd of Hong Kong told corporate clients in a report six months ago. Based on the example of the Philippines, where the collapse of the Marcos regime in 1986 has some parallels, "it will take at least another five years for Indonesia to rebuild its national institutions to basic functioning levels," the report said.
Since Mr Wahid became Indonesia's first democratically elected president in October and appointed his government, there have been a number of significant moves to develop a system of institutional checks and balances. The Parliament, with a new crop of lawmakers elected in June, has ceased to be a rubber stamp for the executive.
Civilian control over the military has been increased. Many of the appointees to key institutional positions made by Mr Wahid are widely acknowledged to be people of integrity. The judiciary is slowly being reformed. The power of the presidency itself has been clipped and is set to be further reduced by the Parliament.
But critics said that Mr Wahid's inconsistency and divisions within the cabinet – comprising 35 ministers from at least seven political parties, the military, the regions, and civic groups – were raising concerns about the effectiveness of the government and its reform programme. The formal replacement on Thursday of Glenn Yusuf as chairman of the powerful Indonesian Bank Restructuring Agency by Cacuk Sudarijanto has caused doubts in the market.
Analysts noted that Mr Wahid had moved decisively to consolidate his control over the country's economic affairs by appointing two close associates to head the restructuring agency and the state-owned power company this week.
The reconstruction agency controls 600 trillion rupiah ($84.3 billion) in equity and debt. It is central to rebuilding the banking sector and resolving Indonesia's $80 billion private debt burden.