Bank Scandal Stirs Up Trouble for Indonesia

While the rest of the world has East Timor highlighted on its mental map of this region, the bigger concern for the average Indonesian is a banking scandal that carries the same threat--driving a stake through President B. J. Habibie’s political heart.

On Friday, the parliament here recommended that some of the biggest fish in the Indonesian political pond be yanked from office. The reason: allegations that nearly $70 million was drained from Bank Bali, which the government took over as a consequence of Asia’s 1997 economic meltdown, and that the money was earmarked for the president’s bid for a new term.

Those named included Indonesia’s finance and enterprise ministers and the presidents of the central bank, the bank restructuring agency and Bank Bali, as well as various deputies. All deny any wrongdoing and say they’re being unfairly targeted by political opponents.

The parliament’s move followed months of mudslinging, intrigue and a media frenzy unprecedented in recent Indonesian history. Like most juicy scandals, “Baligate” involves money, power, big names, huge stakes and allegations of a cover-up.

“Corrupt Funds in the Military, the Bank Bali Confessions,” screamed one headline in the weekly magazine Pani. “The Clowns of Baligate,” trumpeted another in the rival Tempo, this one under a drawing of Habibie’s top fund-raiser getting hit in the head with a tomato.

Not to be outdone, talk shows have pored over every detail. Local network TV, for the first time, ran live coverage of parliamentary testimony and drew a record number of viewers. Other weekly magazines have illustrated the alleged money trail with fancy graphs and detailed flow charts.

In contrast, analysts say, East Timor is seen by many average Indonesians as a place fairly removed from their lives and involving relatively few people who were never really integrated with the rest of the nation after the former Portuguese colony was taken over in 1975.

Beyond all the domestic voyeurism, Baligate has dealt another body blow to a nation already reeling under the fallout from marauding militias in East Timor and recent anti-military rioting in Jakarta, the capital.

Domestically, the scandal continues the destabilization of a fractious political landscape and underlines the yawning gap between public opinion and public policy. Internationally, it further undermines Indonesia’s battered global stature.

And economically, it weakens investor confidence at a time when the world’s fourth-most-populous nation desperately needs capital to generate jobs and help build democratic institutions.

“It’s extremely damaging for Indonesia’s reputation abroad,” said Bill Belchere, a Singapore-based regional economist with Merrill Lynch. “At a time when the rest of the region seems to be moving toward international [financial] standards, Indonesia appears to reject them.”

Both the World Bank and the International Monetary Fund have put on hold loans granted to Jakarta after the Asian financial crisis two years ago, fearful that millions more could end up lining corrupt pockets.

“Earlier, this spring, there was optimism. But now the optimism has gone,” said Sunyoto Tanudjaya, head of P. T. Great River I, a textile maker concerned about the loss of his Japanese customers. “The Bank Bali case and our other problems have to be resolved to bring back foreign and domestic confidence.”

The details of the scandal are twisted and complex but essentially involve $70 million that was found to be missing when Britain’s Standard Chartered Bank tried to buy Bank Bali. Further investigation determined that the money had been siphoned by bank officials into a company with close connections to the ruling Golkar party. Critics charge that it was used to help Habibie’s campaign for a new term, but the president has denied any knowledge of the matter.

Charges of a cover-up followed, however, when PriceWaterhouseCoopers was called in to investigate--and then told it could release to the public only a sanitized copy of its report, excluding big names. When questioned about the matter subsequently, government officials have fought disclosure on bank secrecy grounds.

“Those mentioned in the scandal are very determined and have even tried to interfere by any possible means, including bribery,” said an editorial in the respected Suara Pembaruan newspaper. “There is no reason why the full report should not be released to parliament.”

Government officials counter that the whole issue has been trumped up by Habibie’s political enemies and that foreign investors should see it as such.

“We depend very much on foreign aid,” said Sulaiman Abdulmanan, a Foreign Ministry spokesman. “Investors should separate economic and political issues, and this has become a political issue.”

For average Indonesians, the story is fascinating on several counts. One, analysts say, is the fact that so many details have come to light despite the government’s apparent efforts to squelch them--a far cry from what would no doubt have transpired under the 32-year rule of Habibie’s predecessor, Suharto, whom public protests forced to resign in May 1998. Indonesians have long suspected corruption at the highest reaches of government. But to be able to see it debated in public is heady stuff for them.

“This kind of thing has always been quite common, but it’s never been exposed before,” said Harry Widianto, a 33-year-old businessman toting a laptop computer on his way home from work here.

Another source of the story’s fascination is the role of the Indonesian media, which are flexing their muscles after years of cowering before the Suharto government. For the first time, political intrigue many had whispered about in secret is being splashed across newspapers and magazines.

A third tantalizing element of the scandal is the impression it creates--one shared by foreign investors--that despite all the recent calls for reform and an end to corruption and money politics, nothing has really changed in Indonesia.

Could Baligate bring down Habibie, who was Suharto’s vice president and handpicked successor?

Many believe that it’s not enough by itself but that, together with the mishandling of East Timor, the president’s apparent control by the military and recent student riots, it is a political death knell.

“This just adds to Habibie’s burden,” said social critic Wimar Witoelar. “And he should step down sooner rather than later.”

Others say that all is never as it appears in Indonesian politics, and they caution against writing off Habibie. The decision about Indonesia’s next president, who is supposed to be chosen by the People’s Consultative Assembly within the next two months, is now a contest among lawmakers, not the general public. Consequently, there’s a lot of back-room negotiating, and the Golkar party still has lots of clout.

“As of right now, when I look at the votes, Habibie still has a very good chance,” one well-connected former senior official said.

All sides agree that this could be the worst scenario: Habibie being elected, with military chief Gen. Wiranto as his vice president, despite the fact that opposition leader Megawati Sukarnoputri’s party received the largest number of votes in May elections. That might prompt people to once again take to the streets.

On the scandal’s fundamentals, meanwhile, the parliament has flung down the gauntlet by naming names, but any prosecution must originate at the attorney general’s office, which has virtually no tradition of independence from official government policy.

Even government critics and officials at the World Bank and IMF are divided on how far to take the matter, citing the difference between what’s right and what will work. Indonesia is simply not stable or well-developed enough now, these observers say, to see the entire top echelon of its financial community removed and then navigate out of its worst recession in decades.

Yet despite the extremely messy and ill-timed nature of Baligate, Indonesians and foreigners alike hope the scandal will prove an important juncture on the road to democracy--proof positive that an outraged public can triumph over autocratic, secretive money politics.

One very encouraging sign, many say, is that the muck is all in the public eye--and thus could force parliament and the attorney general to become independent.

“The rest of the world should think things now are different because this issue is out in the open,” said Dewi Fortuna Anwar, state secretary for foreign affairs. “It’s being publicly debated. [Under the old regime], the issue would simply be swept under the carpet.”

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* BATTALION LEAVING

An inglorious tour of duty ends for the men of Indonesia’s feared 321st Battalion. A8