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Sjahril case blow to investor confidence

Dow Jones News - June 22, 2000

Leigh Murray and Grainne McCarthy, Jakarta – Criticism of the detention of Bank Indonesia Governor Sjahril Sabirin mounted Thursday amid suggestions of political interference, with analysts and business executives saying the case has dealt another blow to already shaky investor sentiment towards Indonesia.

Swift complaints about the detention by Parliament Speaker Akbar Tanjung and the chairman of the People's Consultative Assembly, or MPR, Amien Rais, also stoked talk of a growing rift between them and President Abdurrahman Wahid, who must appear before a key MPR gathering in August.

Indonesian Attorney General Marzuki Darusman detained Sjahril Wednesday, marking the first high-profile casualty of the Bank Bali lending scandal. Sjahril was detained for 20 days to question him further on his alleged involvement in the scandal, which rocked Indonesia's markets last year and led international lenders to suspend loans to the country.

His detention comes two weeks after prosecutors named him a suspect in the so-called "Baligate" scandal, which centers around the transfer of around $80 million out of Bank Bali last year to a company linked to the then-ruling Golkar Party. The money was ostensibly paid as a debt-collection fee on government-guaranteed loans extended by Bank Bali.

Coming amid a feud between Sjahril and Wahid, Sjahril's detention – in a jail house adjacent to the attorney general's office – stoked speculation that the case against him is politically motivated and driven more by Wahid's wish to oust him than by any hard evidence.

Marzuki denied this Thursday and said that Wahid didn't order Sjahril's arrest. Marzuki added that he now has sufficient evidence to charge Sjahril with corruption in relation to the case.

Defends decision to detain sjahril

Defending his decision to detain the governor, Marzuki said: "Our office found new evidence that the suspect already conducted corrupt, criminal acts, as stipulated by the law. "In this case, Sjahril Sabirin, as an official of monetary authorities and governor of the central bank, already disbursed the Bank Bali claim guaranteed by the government without a proper verification," Marzuki said. "In fact this disbursement violated some conditions."

Just what new evidence Marzuki has against Sjahril is unclear. Several witnesses have placed Sjahril at a February 11, 1999, meeting in which an aide to ex-President B.J. Habibie and other suspects in the Bank Bali slush-fund scandal "requested the governor to have Bank Indonesia examine bank claims more closely." Sjahril has denied attending the meeting. An international audit report last year also raised other questions about Sjahril's dealings with the Bank Bali interbank claims.

Despite Marzuki's comments, analysts and business executives say the very hint that Wahid may have intervened in the legal investigation doesn't bode well for future reform in Indonesia and adds to a barrage of uncertainty in the country in the lead up to the August MPR meeting, at which Wahid must give a speech on his achievements to date.

Wahid's critics are already threatening to unseat him over, amongst other things, alleged corruption in his inner circle, his bid to lift a long-standing ban on communism and a lack of progress by Wahid's government in implementing key economic reforms.

"This is one more reason for foreign investors to pull back from Indonesia," said David Cohen, economist at S&P MMS Emerging Asia in Singapore. Cohen said the Sjahril drama comes at a time when Indonesia's economic data are showing reasonably positive signs, with particularly strong exports. He said investors are worried about possible interference by Wahid, who was reportedly angry with Sjahril after the governor failed to approve the appointment of a friend of the president to head state-owned Bank Rakyat Indonesia. "You would like to think that Wahid would hold the course for Indonesia above any petty get-even motive," Cohen said.

Clouds business environment

An investment relations manager with a leading Indonesian oil producer said the impression that Wahid may be abusing his power further clouds the country's business environment and raises questions about the central bank's independence.

Parliamentary Speaker Akbar questioned Thursday the attorney general's move to detain Sjahril, saying it was done for "inappropriate reasons." "The legal reasons given by the attorney general are inappropriate," he said. "So far, as the attorney general said to me, Sjahril has been cooperative."

MPR speaker Rais also lashed out at the detention, saying it is tantamount to political intervention. "It's almost unbelievable and the process [to detain] him was too fast,", he said.

Rais said the detention of Sjahril appeared to be politically motivated. "This is political intervention or power intervention," he added. "This is, I am sorry ... too much."

Acting Bank Indonesia Governor Anwar Nasution meanwhile, appealed to the attorney general Thursday to improve the accommodation for Sjahril, arguing that his current conditions are "inappropriate." Nasution told reporters that Sjahril was being held in a "bad room, full of mosquitos. "We don't ask for a room like in a five-star hotel," Nasution said. "But at least, it should be comfortable for Sjahril."

A guard outside the attorney general's jail house said the governor is being held in one of six detention rooms at the jail and measures roughly three by four meters. The doors of the room have bars similar to a regular jail house. The guard said the room has one small bed, with an old synthetic sponge mattress. The room has no fan, air conditioning or private bathroom. He said there is no telephone access. The room has a small air vent that allows mosquitos to enter.