JAKARTA - Tense times for the rupiah and the economy amid Bank Indonesia's crisis at the top
Syahril Sabirin is back at work after six months away, and there's something of a celebration on. Jacket tossed over his shoulder, Indonesia's mild-mannered banking chief wades through a crowd of central bank employees welcoming him back like some dear uncle. The odd thing is, he's just spent half a year under house arrest, on charges of corruption. But Sabirin is among supporters now. He speaks of the need to rebuild staff morale and clear his name. The government still aims to bring Sabirin to court over a scandal involving $80 million in commissions paid by Bank Bali to a firm linked to Golkar, the former ruling party. Allegedly in exchange for the money, funds were released to Bank Bali with central bank approval. "It's a soap opera," sniffs a senior state official, shocked by Sabirin's return. "A farce," adds another.
It would all be funny — if it weren't for real. In fact, Bank Indonesia has joined the hated military, the bungling police and a government adrift in the gallery of faltering national entities. "This is just one more example of the institutional vacuum," says Robert Broadfoot, managing director of the Hong Kong-based Political and Economic Risk Consultancy. Sabirin's woes are not the central bank's only problem by a longshot. Recently, all but two central bank governors resigned after the Supreme Audit Agency reported that during the financial crisis, nearly $9 billion in emergency loans to private-sector banks, many controlled by Suharto cronies, were diverted to unauthorized spending and lending (see table opposite). Little of the money is likely to ever be recovered. Can Indonesia's currency and economy survive the foibles at the central bank? So far, the rupiah isn't collapsing, though it's down 25% from its 2000 high.
Analysts blame political troubles and the yearend rush for dollars to pay foreign loans. Bank Indonesia has been raising interest rates to prop up the currency, with success. But Rebecca Patterson, vice-president for emerging-market currencies at J.P. Morgan in Singapore, warns that central bank problems could eventually undermine the rupiah. "It adds up," she says. "Stability in central banks is something investors like to see." Sri Mulyani, former deputy head of the now-defunct economic advisory council, says if problems are not solved in a month, "I am very, very nervous." Bank Indonesia staffers insist business is normal despite the crisis. The impact on operations is "minimal," contends deputy governor Miranda Goeltom. Really? Many officials are in fact reluctant to make major decisions. At least one issue will soon demand action: a growing cash problem at Bank Mandiri, the state-owned behemoth cobbled together from four government lenders.
Aditya Wardhana, a bank analyst at Trimegah Securities, explains that state pension funds and insurance companies complied with limits on deposits in any one bank by dividing the money among several. But with the merger of the four state lenders, those deposits have been combined into Bank Mandiri — and now exceed the ceiling for a single institution.
The government can't do much to clean up the central bank because of a law passed last year that grants the institution independence. Parliament now plans to trim that independence, and bank employees are protesting the move. Many of the 6,000 staff see Sabirin as a hero seeking to preserve its freedom from political meddling. "Everybody believes he is a man of integrity," claims Goeltom. Adds a central bank employee: "He is like a prophet to us." Even independent economist Mulyani agrees that the principle of central bank independence is important: she argues that Sabirin should hang tough for at least the next few months and fight to keep the bank independent. Appointed in the final days of Suharto's rule in 1998, U.S.-educated Sabirin has always denied involvement in the Bank Bali anomaly. He sees it instead as a government plot to replace him with someone less assertive.
But Bank Indonesia's bosses also have lots to explain, particularly the loans to troubled banks. At today's exchange rates, they total $17.2 billion. The Supreme Audit Agency estimates that as much as 95% of the money may never be repaid. It blames Bank Indonesia for failing to track it. Much of the money went to banks controlled by Suharto cronies, and 59% was misspent, says the agency. The government and the central bank have been trying to push the deficit onto each other's books. If they were all charged to the bank, it would go bankrupt.
Last month, Bank Indonesia agreed to absorb some liabilities, and the government pledged fresh capital. Then the five governors quit, including acting chairman Anwar Nasution, to clear the way for new leadership and thorough housecleaning. But changes to banking legislation and the naming of a new board have been delayed. The amendment process may now take until February. While the resigned governors are holding the fort until replacements arrive, they have little incentive to do much more than keep their seats warm. "There are no people in charge, even though they are in their offices," says analyst Aditya.
Meanwhile, outsiders are angling for central-bank clout. Vice President Megawati Sukarnoputri's Indonesian Democratic Party of Struggle, the largest force in Parliament, wants to nominate two of its high-profile legislators, former Wahid ministers Laksamana Sukardi and Kwik Kian Gee, as governors. With their financial experience, they are likely to push for more transparency and accountability. Jakarta has also proposed that cabinet ministers be able to observe meetings of the bank board. IMF country manager John Dodsworth wants to see Bank Indonesia maintain its independence. Most people, though, would be relieved if the central bank just maintained its balance.
By WARREN CARAGATA