Many private banks set up by Indonesia's super-wealthy in the 1980s are reeling under the weight of mismanagement. But connections sometimes allow them to evade the laws of financial gravity, as SUARA INDEPENDEN shows in these two reports.
Bank Yama, owned by Mbak Tutut, was rocked recently by non-performing loans. The main source of the problem was one of Tutut's own group of companies. To save the bank, BCA was forced to buy shares.
It's a plus to be the president's daughter in Indonesia. It gives you more scope in business. And if your business is threatened by bankruptcy because it can't pay its debts, another entrepreneur can always be induced to help out. Siti Hardiyanti Rukmana's is a case in point. The president's first daughter, known informally as Mbak Tutut, had a mind to open a bank - when opening banks was the rage in the 1980s. And so came into being Bank Yama, to complete a line of businesses of indeterminate purpose owned by Mbak Tutut.
But with the subsequent hotting up of the economy and a tightening of monetary policy, many a bank got into trouble. Borrowers were defaulting everywhere, and especially prone to difficulties were banks where the management was weak. One bank with weak management was, yes, Bank Yama.
For two years it has been more dead than alive. And the reason? Mbak Tutut had been freely ordering the bank to channel loans to her Educational Television of Indonesia (TPI). The idea was to boost TPI's ability to compete with other private television companies. But, perhaps because they didn't do their sums, TPI, though inundated with loan money, continued to drag its feet and to rely heavily on equipment borrowed from state television TVRI.
Meanwhile the steady outflow of funds was hurting Bank Yama. The problem was that credit was being siphoned off not only for TPI but also for other Tutut projects, such as unprofitable toll road projects in Malaysia and the Philippines.
As a consequence, Bank Yama was soon in breach of regulations limiting the maximum volume of loans which may be made to affiliated companies. Strangely enough Bank Indonesia, which is supposed to monitor compliance with the regulations, neither issued a reprimand nor imposed sanctions, but instructed state bank BNI 1946 to provide Bank Yama with an injection of funds and to lend its managerial assistance to nurse Bank Yama back to health.
However, the vision and direction of Bank Yama remained unchanged and the financial and management assistance was not effective. Mbak Tutut preferred to bypass these difficulties and motor on down the freeway.
Fresh funds in bigger amounts were extracted from Bank Central Asia (BCA). How could she do it? No problem. Mbak Tutut owns 17.5% of the shares in BCA, a gift from billionaire Liem Sioe Liong. In addition, her brother Sigit Hardjojudanto has an equal holding, so Mbak Tutut was able to exert enough influence to have BCA buy 25% of the shares of Bank Yama. And it was not the shares owned by Tutut which were bought, but shares owned by the Metro group and the Maruli family. Thus Tutut retained control of Bank Yama.
This case set a new precedent which is likely to furrow a lot of brows in banking circles. Yes, it's a plus to be the president's daughter in Indonesia these days. If your business fails, you can always have someone else take the rap.
Extracted from Suara Independen February 1997.
Bank Pacific was more fortunate than Bank Summa. Suharto intervened to defend Ibnu Sutowo and save Bank Pacific from liquidation.
The same mistake: different result. This is the experience of Bank Pacific owned by the family of Ibnu Sutowo, former managing director of Pertamina. Although the bank had problem loans in excess of Rp 2 trillion it did not have to be liquidated, closed down, declared bankrupt.
The same mistake was made some years ago by Bank Summa, owned by Edward Soerjadjaja, eldest son of tycoon William Soerjadjaja, former boss of motor major Astra International. But Edward and William, who are seen as non-indigenous entrepreneurs, were not so lucky. Bank Summa was declared bankrupt and William was obliged to surrender his shares in Astra to pay his son's debts.
In the case of Bank Pacific, Endang Utari Mokodompit, Ibnu Sutowo's daughter, didn't have to inconvenience her father like William, who had to forfeit Astra out of a parent's sense of responsibility for his son's actions.
No sooner was it suspected that one of the companies in the group owned by the Ibnu Sutowo family had credit problems than Bank Indonesia came to the rescue at once. Then and there, state bank BNI 1946 moved in to strengthen the management, and the government administered an injection of funds through Bank Indonesia, taking up a 51% share in the ownership of Bank Pacific.
In the event, the condition of Bank Pacific was so acute that even this major involvement of government shares could not secure a recovery. Hundreds of billions, or even trillions of rupiah in obligations of the bank to its customers required urgent repayment, including commercial paper (CP) overdue for redemption.
Many commentators say that the government should have taken the same firm approach with Bank Pacific as it did with Bank Summa. Especially since the state of the Ibnu Sutowo family bank and the legal ramifications of the case were so much more serious than the situation of Edward's bank.
Economic observer Sjahrir says that it would not have been out of order for Bank Indonesia to liquidate Bank Pacific, given that there are now well established legal mechanisms providing for the closing down of a bank in extreme circumstances. 'I don't understand why the government has not been consistent in its handling of the Bank Pacific case', he said when interviewed by Suara Independen in Surakarta recently.
The reluctance of the government to shut down Bank Pacific is because its owner has such strong influence with those in authority, being one of those closest to Suharto. That's why both the Governor of Bank Indonesia and the Minster for Finance have chosen to go to ground, zip their lips and maintain their silence. Consequently speculation is rife and assumptions of the strength of the Ibnu Sutowo lobby have been confirmed.
On several occasions Mar'ie Muhammad has been reluctant to comment on the case. 'I don't want to comment and set parliament talking' is all he would say when pressed by journalists. Sjahrir has confirmed the assumptions, adding that the access and political sway of William was insignificant compared with that commanded by the owner of Bank Pacific. 'If it was good enough for them to shut down Bank Summa even before the regulations were in place, what's holding them back now?', concluded the former political activist.
Extracted from Suara Independen March 1997.
John Gare was the translator.