One of the major impediments to recovery in Asia is the corruption in the
banking sector. In the last week or so, the NYTimes, of all places, has
been writing several pieces on just how extensive this corruption is. Here
is one on Indonesia from today's NYT. A recent book on the political
economy of corruption by Susan Rose Ackerman goes into pretty heavy detail
on how to create institutional firewalls to pre-empt the rent seeking that
comes with political power. It would be interesting for Pen-L to take up
Michael's suggestion and carry a thread on the future of banking and it's
struggle for legitimacy in the wake of the '97 meltdown and the collapse of
the 'Asian Model'.
ian
http://www.nytimes.com/yr/mo/day/news/financial/indonesia-bank.html
August 21, 1999
Banking Scandal Threatens Efforts to Change Indonesia
By WAYNE ARNOLD
[[ MAPI 1.0 storage : 3840 in winmail.dat ]]
INGAPORE -- Displaying internal divisions that could hamper efforts to
overhaul Indonesia's economy, lawmakers from President B.J. Habibie's own
political party are taking sides against him over a widening banking
scandal.
Members of a faction in Indonesia's ruling Golongan Karya party, or Golkar,
joined opposition politicians Friday in calling for the resignations of both
Finance Minister Bambang Subianto and Glenn Yusuf, the chairman of the
Indonesian Bank Restructuring Agency.
Their demands came after a closed-door meeting of a special parliamentary
committee investigating a bank loan recovery deal by Bank Bali. Thomas
Suyatno, a member of Golkar, referring to the finance minister, told
reporters: "He has to step down. It is his moral responsibility."
The controversy revolves around a fee of 550 billion rupiah ($78 million)
that Bank Bali paid a company controlled by Golkar's deputy treasurer to
recover loans from a bank that the restructuring agency had taken over.
Opposition politicians contend the money went to President Habibie's
campaign for election in November.
On Thursday, the first day of the committee's inquiry, Bambang and Yusuf,
along with the central bank governor, Sjahril Sabirin, testified for 12
hours. Another Golkar legislator said Friday that the party had rejected
their explanations. The committee has threatened to summon Habibie to
testify.
Concerns that the scandal could further destabilize Indonesia politically
and undercut the agency's authority to revamp the nation's financial system
have roiled financial markets in Jakarta. Indonesia's government set up the
restructuring agency in January 1998 as part of the terms of the
International Monetary Fund's $42.3 billion bailout of the economy. Earlier
this week, the IMF demanded a full investigation by an independent auditor.
The World Bank echoed that call in a statement Friday by its country
director in Indonesia, Mark Baird.
"This matter needs to be resolved, not only because of the large sums of
money involved, but also because of the greater confidence and credibility
issues at stake," he said.
The bank agency has hired PricewaterhouseCoopers to conduct an independent
audit of the Bank Bali transaction. The company that received the fee,
meanwhile, repaid the money to Bank Bali this week.
A Finance Ministry spokesman said Bambang had asked Parliament to wait for
the results of the audit, expected in two weeks, before passing judgment. A
spokesman for the bank agency said Yusuf was not planning to resign.
The bank restructuring agency said this week that it was on target to
surpass its 17-trillion-rupiah fund-raising goal for the year ending next
March, but analysts said its credibility had suffered tremendously, and
people close to the agency said morale was very low.
The Bank Bali case is expected to be one of many such discoveries involving
mysterious and possibly illegal deals as regulators and bankers unravel
decades of cronyism at Indonesian banks and companies. Last week, talks on
reorganizing $1.3 billion in debts at the Indonesian cement maker Semen
Cibinong collapsed when the company informed creditors that $250 million was
missing. And earlier this month, the management of the family-run Bank
International Indonesia was removed after failing a central bank ethics
evaluation.
winmail.dat
