Bill Guerin. Jakarta – One of the last remaining tasks for the Indonesian Bank Restructuring Agency (IBRA) before it is wound up at the end of next month is selling Bank Permata, the country's 10th-largest bank.
IBRA, which took over several troubled banks in the wake of the late-1990s financial crisis, has succeeded in selling majority stakes in Bank Central Asia (BCA), Bank Niaga, Bank Danamon and Bank Internasional Indonesia (BII) over the past two years. However, repercussions from an earlier bank scandal may thwart the agency's plan to sell up to 71 percent of its 91.3 percent stake in Permata this month.
The timing could hardly have been worse. Hot on the heels of the recent discovery of two major lending-fraud cases at two state-owned banks, Permata remains caught in the middle of a legal dispute between IBRA and the Attorney General's Office (AGO).
The dispute is over ownership of funds totaling Rp456.5 billion (US$54.6 million) used by IBRA in 2001 when four nationalized banks under its control, Bank Universal, Bank Artha, Bank Prima Express and Bank Patriot, were merged with a fifth, Bank Bali, one of the country's oldest and largest banks, to form Permata.
The funds had been held in Bank Bali in an escrow account until the newly created Permata bank was recapitalized with an injection of Rp10.5 trillion in recap bonds and Rp1.16 trillion in cash. The Rp456.5 billion used by IBRA formed part of the cash injection.
By law IBRA must gain approval from the House of Representatives (DPR) for any divestment plans affecting banks under its supervision and it plans to seek this approval during the House's next session, which begins next week.
However, Hakam Najam, a senior legislator on the House's finance commission, has warned that the House may block the planned sale unless there is a resolution of the protracted legal confrontation between the agency and the AGO.
"For Permata, we want everything to be clear first. We don't anything fishy or opaque to be hanging over the bank. Like the cessie case, for example, which is still a problem," Najam said last weekend on the sidelines of a banking seminar.
A "cessie" is an assignment agreement. Najam was referring in this instance to the Bank Bali scandal, dubbed "Baligate". Revisiting the epic shows how the passage of time has changed little in Indonesia. The scandal, which reached out to several ministers and top officials from the Bank of Indonesia and IBRA spread outward to the International Monetary Fund (IMF) and the World Bank. Baligate grabbed the headlines because it involved a company partly owned by the deputy treasurer of the then ruling Golkar party, Setya Novanto
The plot could hardly have been simpler. In early 1999 Bank Bali, faced with a mountain of bad debts, applied for a government rescue and the government decided to put part of the bank up for sale.
UK-owned Standard Chartered Bank, in its due-diligence process prior to making an offer for a 20 percent stake in the bank, found a huge black hole in the bank's books. Some Rp546 billion, the equivalent of $70 million, had found its way from the bank's accounts to PT Era Giat Prima (EGP), headed by Novanto.
Rudy Ramli, founder of Bank Bali, needed to raise millions of dollars so the bank could meet the government's new capital-adequacy standards. If he failed, the state would either take over the bank or shut it down, all strictly in accordance with Indonesia's agreement with the IMF.
Bank Bali was owed more than $100 million by three banks that had been closed. Under the bank-restructuring laws, the government guaranteed the debts of all banks, so Ramli should have been able to recoup the money. However, Bank Bali paid EGP a 60 percent "commission " to help collect a total of Rp946 billion from IBRA. Ramli was investigated by the police, and quickly dropped his bombshell. He named Finance Minister Bambang Subianto, Bank Indonesia governor Sjahril Sabirin, State Minister of the Empowerment of State Enterprises Tanri Abeng, head of the Supreme Advisory Council (DPA) A A Baramuli, then-president B J Habibie's younger brother Timmy Habibie, IBRA deputy chairman Pande Lubis and five top businessmen as being involved in the case. The die was cast!
Faced by increasing media pressure, the owners of EGP, Novanto and his business partner Djoko Tjandra, quickly arranged to repay the "hot" money to Bank Bali.
The controversy sparked intense media investigations. Local media poured scorn on the idea that it was enough for a thief just to pay back what he had stolen. It was alleged that Habibie's informal re-election committee, Tim Sukses (Team Success), was to have benefited from the money, to buy off a majority share of votes in the People's Consultative Assembly (MPR).
The World Bank and the IMF cranked up pressure for an independent, public inquiry into the fiasco, calling on the Habibie government to "publicly reveal all information about the case and prosecute those involved".
Golkar wanted its man Habibie re-elected, so the ensuing alarm and despondency was easy to predict. Habibie was at first defiant, saying it was not his business to know the details "I don't care where the money went; the bank owner has every right to use the money as he sees fit."
International accounting firm PricewaterhouseCoopers (PwC) was appointed by the state audit agency to audit not only IBRA but also Bank Indonesia to get to the truth.
PwC faced obstruction at every turn, and eventually a 36-page document was made public by Satrio Yudono, chief of the Supreme Audit Agency. Yudono, in spite of IMF and World Bank anger, refused to make public the full 123-page report on the scandal, ludicrously citing banking-secrecy laws as the reason.
Both the IMF and the World Bank immediately suspended loans to Indonesia, although they opened up the taps again after the full version of the PwC report was made public by the government.
A special investigation by the House of Representatives backed up the conclusions in the PwC report and found that the transaction between Bank Bali and EGP had been legally defective from the outset, as the latter had not made any payment to take over the bank's claims.
The PwC report described a web of fraud, non-compliance, irregularity, misappropriation, undue preferential treatment, concealment, bribery and corruption involving various institutions, particularly IBRA and the central bank.
It noted that as the debtor was IBRA (ie the government), Bank Bali did not need the services of any other party to collect its claims. Also, if Bank Bali could not collect the money itself it would have meant the claims did not meet the requirements for reimbursement. No other party would have been able to validate the claims for payment, unless they colluded with IBRA or the central bank, which was in charge of verifying the validity of such claims.
Weak law enforcement meant that months were wasted through attempts by lawyers to finesse the case into the civil courts. When the dust finally settled, criminal trials of the major suspects got underway.
Tjandra and two others, central bank governor Syahril Sabirin and IBRA vice chairmen Pande Lubis were charged and tried over a transaction that was against the law and caused losses to the state.
Judge Soedarto freed Tjandra of all charges over a legal technicality. In acquitting the man widely seen as the main mover of the "money swap", the judge sent a signal to the other suspects, and the corruptors waiting in the wings, that white-collar crime does indeed pay.
Tjandra had been charged, as the former president of EGP, with influencing other suspects in the case to illegally channel the $78 million from the insolvent Bank Bali to his own company. The judge also in effect ruled that the money belonged to Tjandra, and suggested the government should pursue the freed man in the civil courts.
Later, in the same court, Pande Lubis, the former deputy head of IBRA, was also found not guilty on all counts, as the prosecution had "failed to establish guilt".
The prosecution appealed both verdicts. Appeals were heard, but the verdicts, which had dealt a body blow to any remaining credibility and belief in the upholding of justice, were confirmed. No crime committed.
Since then the sector has had more than Rp600 trillion of public funds injected by the government through a massive recapitalization program. The restructuring and the ongoing privatization programs play a fundamental role in the recovery and continued growth of the economy, but maintaining the momentum has been made that much more difficult by the spat over Permata and the recent scandals in state-owned Bank Rakyat Indonesia (BRI) and Bank Negara Indonesia (BNI), the country's fourth- and second-largest banks respectively.
Seizing back the money from IBRA would endanger the solvency of Permata. With the financial health of the bank under such a threat, and given the recent scandals restoring investor confidence in Indonesia becomes that much more difficult.
The AGO claims the funds used by IBRA were meant to remain in legal limbo, as they were the subject of legal proceedings against the prime suspect in the case, Djoko Tjandra.
As the Supreme Court has recently acquitted Tjandra on all charges, the AGO is insisting now that IBRA return the money, arguing that as executor of the Supreme Court's decision it is legally bound to claim the money back from IBRA and return it to EGP.
However, the investigations also uncovered that after EGP discovered its dealings with Bank Bali had aroused government suspicion, the company restored the right to collect the claims to Bank Bali in March 1999. Thus, it was Bank Bali and not EGP that collected and received the payment for the claims from IBRA. IBRA later annulled the Bank Bali-EGP deal in October 1999.
When central-bank governor Sabirin, tried on accusations of ordering one of his directors, Erman Munzir, to disburse the funds direct to Bank Bali (notwithstanding that IBRA had not called for the payment to be made), was acquitted by the Jakarta High Court in August 2002, most thought the story would end, buried and swept under the carpet, and of interest only to historians.
But this week it was revealed that police are questioning Sabirin and the former head of IBRA, I Putu Gede Ary Suta, in another fraud investigation sparked off by a Supreme Audit Agency (BPK) report in August that alleged that the central bank and IBRA had manipulated Rp20.9 trillion in state funds set aside to protect depositors.
Though a deposit-insurance scheme will replace the existing blanket-guarantee scheme currently being handled by IBRA, the existing scheme guarantees all obligations of closed-down banks, and has helped protect the sector from runs on banks, such as BRI and BNI, where public confidence has been at risk. Some Rp53.78 trillion was held in a special account, Account 502, meant to assure depositors that their cash was safe. In the event of bank closures, the government would use it to pay back depositors.
However, the DPR in 2001, acting on information that most of the funds had been spent, ordered state-audit agency BPK to investigate. Finally, last September, BPK filed reports with the police alleging that the central bank might have incorrectly disbursed Rp17.8 trillion from Account 502, and IBRA was responsible for another Rp3.2 trillion.
Separately, it was announced this week that some Rp24 billion has been embezzled from a branch of Bank Mandiri, the country's biggest bank, in Magelang, Central Java. The provincial police chief, General Didi Widayadi, said last week that the modus operandi was similar to the one used by suspects in the BNI and BRI scandals.
Plans by the central bank to improve corporate governance and intensify surveillance systems may be in the pipeline but recovery is clearly a long way off for the banking sector.
Imminent changes of government also spook would-be investors. With legislative elections due on April 5 and the presidential election in July, investors are likely to remain in "wait and see" mode for several months.