"The officials who have responsibility for implementing the program are themselves robbing the bank. It's a white-collar robbery by all the president's men." ------------------------ September 29, 1999 Indonesia's Recovery, and Democracy, Tested by Baligate Scandal -------------------------------------------------------------------------------- By MARK LANDLER jAKARTA, Indonesia -- In the streets of Jakarta, students lob firebombs at police. In the ruins of East Timor, Indonesian soldiers seethe as foreign troops take over. In the desolate scrub of Ambon, Christians and Muslims kill each other with home-made guns. There is no shortage of issues to anger today's Indonesia -- a country suspended uneasily between dictatorship and democracy, economic ruin and recovery. Yet of all the outrages in Indonesia these days, the one that rankles people here most is a financial scandal known throughout the country as Baligate. The facts of the case are simple: Bank Bali, one of Indonesia's largest banks, paid nearly $70 million to the ruling Golkar Party to help recover loans it was owed by other banks. The money was to be funneled into the reelection campaign of President B.J. Habibie. Since the scandal came to light in July, the money has been returned and a raft of investigations begun. Yet the public outrage has become more thunderous by the day. With evidence emerging that other banks may have been asked to participate in similar schemes, the Parliament on Friday demanded that Habibie suspend seven top officials, including the finance minister and the governor of the central bank, who it says were involved. "This scandal is the straw that broke the camel's back," said Mark Baird, the World Bank's country director in Indonesia. "It's indicative of the much bigger political and economic stakes in Indonesia." Nobody has yet accused Habibie himself. But after three scandal-scarred decades under his predecessor, Suharto, people here are in no mood to let an unpopular president off the hook. The scandal -- and the government's obdurate response to it -- has become a touchstone for those who say Indonesia must shed its culture of corruption. "People are really fed up," said Rizal Ramli, an economist here. "After watching Habibie make so many speeches about the rule of law, they realize the laws are not being upheld. Despite his claims of being different, this government is merely an extension of the Suharto government." Political analysts here said that the scandal had grievously wounded Habibie, who faces a tough election in November. But the stakes are even greater: Some worry that Baligate could jeopardize Indonesia's recovery and transition to democracy. "If you were to elect a new president and not resolve Bank Bali, I think all of these political changes would be at risk because you fundamentally haven't changed the culture," Baird said. Anoop Singh, deputy director of the International Monetary Fund's Asia-Pacific operations, said the IMF could not "just put this aside and move on with the program without fully resolving the issue." The IMF, the World Bank, and the Asian Development Bank have backed up their words by withholding almost $1.4 billion in loans to Indonesia until the country releases results of an outside investigation. The longer Jakarta refuses, the higher the cost: by the end of next March, these agencies are scheduled to lend $4.7 billion to Indonesia -- more than 10 percent of their total $43 billion rescue package. Indonesian officials say they can make do for a while. But they agree that the country cannot fully recover from its economic trauma without a resumption of foreign aid. "In this budget year, we need $10 billion in external aid," said Umar Juoro, an adviser to Habibie. "If they stop the support permanently, it would be a disaster for the economy." That Indonesia would risk such a disaster shows how difficult it is for the country to change. Despite demands that the government get to the bottom of things, it has refused to release a lengthy report on the scandal assembled by the accounting firm PricewaterhouseCoopers. People who have seen the report said that it named at least seven senior officials as being directly involved in a scheme to divert nearly $70 million from Bank Bali to the Golkar Party. They also said that the report tracked the flow of money from Indonesia's Bank Restructuring Agency, which had nationalized Bank Bali, into a web of accounts held by people with ties to Golkar. The State Audit Board, which received the PricewaterhouseCoopers report, first urged the firm to release it. But threatened with lawsuits by the people named in the report, the board backed off. Now, it says, bank secrecy laws prevent disclosure. "In protecting all these people, it is true that I might be protecting guilty people," Satrio Budihardjo Joedono, the Audit Board chairman, said. "But let the police decide, let the lawyers decide. This is a question of law." Joedono said he had given the report to the police, and hoped that the right people would be prosecuted. He shook his head, exasperated. Fighting corruption in Indonesia is not easy, he said, especially when the culprits are well financed. He hinted that it could also be dangerous: "There are people walking around with millions. That can buy a lot of lawyers and a lot of guns." Among the people worried by the scandal is the man who started it: the former president of Bank Bali, Rudy Ramli. Ramli, who is 41 and no relation to the economist, moved his family to Singapore and ducked out of sight after the scandal broke. He emerged two weeks ago to testify at a hearing in Parliament -- a pale shadow of his once-ebullient self. The scandal is the sad denouement of Ramli's desperate struggle to hold onto a bank he inherited from his father. The elder Ramli, an ethnic Chinese businessman, bought the company in 1967; its name derives from its roots on the resort island of Bali. Under Rudy Ramli, Bank Bali grew into Indonesia's fourth-largest private bank. It specialized in consumer banking and won the respect of securities analysts with its relatively conservative loan portfolio. "Bank Bali was thought of as a good bank, and Rudy Ramli was viewed as an honest banker," said Mark Hansen, a consultant who specializes in banking at Booz Allen & Hamilton in Jakarta. But like all Indonesian banks, Bank Bali was devastated by the Asian financial crisis. The devaluation of the Indonesian rupiah left most of its corporate clients insolvent, which meant they could not repay loans. And an outbreak of violent unrest in Jakarta and other cities caused panicky bank runs. Ramli found himself in a race against time. Unless he could quickly raise millions of dollars, Bank Bali would fail to meet the government's capital-adequacy standards. Under Indonesia's agreement with the IMF, the state would either take over the bank or shut it down. At a companywide meeting, Ramli vowed to do whatever it took to keep the bank afloat. "If everybody is going to die," Ramli said in an interview here last year, "we want to be the last ones to die." He focused on more than $100 million that Bank Bali was owed by three banks that had been closed. Under Indonesia's bank restructuring laws, the government guaranteed the debts of all banks, which meant Bank Bali should have been able to recoup the money. But Ramli kept running into walls when he pleaded his case at Indonesia's Central Bank and the Bank Restructuring Agency. In desperation, he turned to a finance company, PT Era Giat Prima, headed by the deputy treasurer of Habibie's Golkar Party, Setya Novanto. The finance company helped Bank Bali recover the loans -- but extracted a 60 percent commission, roughly $70 million. Novanto described it as a debt-collection fee. Habibie's rivals in Golkar said that the money was earmarked to buy votes in November's presidential election, a charge that Novanto denies. The scandal was blown open in July by a consultant and gadfly, who had obtained documents about the arrangement. Overnight, Ramli's Faustian bargain threatened virtually every senior finance official in Indonesia. Among those who have been accused of knowing about the deal were Finance Minister Bambang Subianto; the governor of the central bank, Syharil Sabirin; State Enterprises Minister Tanri Abeng, and one of Habibie's closest advisers, Arnold Baramuli. Under pressure, the government hired PricewaterhouseCoopers in August to investigate. Despite having only two weeks and poor access to information, the firm said it uncovered "numerous indicators of fraud, noncompliance, irregularity, misappropriation, undue preferential treatment, concealment, bribery and corruption." At Joedono's request, PricewaterhouseCoopers issued an abridged version that omitted more specific allegations about involvement by senior officials. That report was circulated to members of Parliament; a copy was obtained by The New York Times. Even without naming names, the abridged report paints a vivid picture of how officials used Indonesia's bank restructuring program as a lever to extract payments from Bank Bali. It describes how Ramli's requests for help were rejected by regulators, and then suddenly granted after meetings between Bank Bali officials, regulators, and Habibie's advisers. Testifying before Parliament, John Campbell, the PricewaterhouseCoopers partner who wrote the report, said regulators had approached 12 other banks about cutting similar deals. He noted that the way the bank restructuring was organized, regulators had access to vast pools of money to rescue some banks and not others. Such a setup, Campbell said, had created a "high internal and external vulnerability to fraud and misconduct." After hearing Campbell, Indonesia's Parliament demanded that Habibie suspend the finance minister, central bank governor, state enterprise minister and his adviser, Baramuli, as well as four other officials. But Habibie said he would wait for a legal verdict before dismissing anyone. Such statements give little comfort to the IMF and other agencies. Indonesia's legal system is notoriously ineffectual. Critics say that a prosecution of the Bank Bali case would founder as surely as an investigation of former Suharto's ill-gotten wealth has. Most officials have maintained silence, refusing to cooperate with investigators or give interviews. Some have gone on the offensive. Sabirin, the central bank governor, called the report "absolutely wrong and unfounded" in suggesting it gave preferential treatment to Bank Bali. He has threatened legal action against the firm. People here acknowledge that by the extravagant standards of indonesian corruption, a diversion of $70 million is peanuts. After all, Suharto and his family are accused of siphoning billions. But the Bank Bali affair could have huge collateral damage because it undermines Indonesia's efforts to rebuild its banking system. With costs estimated at $40 billion to $60 billion, the bailout is already one of the most expensive in history. Suspicions that the process is corrupt could make it worse by scaring away foreign banks that might have invested in banks here. After watching their country become a synonym for corruption, taxpayers here are no longer willing to look the other way. That may be why Bank Bali has aroused so much ire. "The officials who have responsibility for implementing the program are themselves robbing the bank," Ramli, the economist, said. "It's a white-collar robbery by all the president's men."
