The World Bank warned today that it might withhold badly needed economic assistance from Indonesia unless the government moved quickly to resolve a burgeoning multimillion-dollar banking scandal that has engulfed the presidency of B.J. Habibie and may have boosted the chances of his rival, Megawati Sukarnoputri, to succeed him.
"It is very difficult for us to provide budget support for Indonesia if the case is not satisfactorily resolved," the World Bank country director, Mark Baird, told reporters here. He mentioned no specific programs or amounts, but an aid cutoff could affect up to $1 billion in loans for such things as rural development and governmental reforms.
Baird's statement marked the first time in the World Bank's decades-long involvement in Indonesia that it has publicly threatened to hold up lending over a matter of corruption, despite evidence of high-level malfeasance during much of ex-president Suharto's 32-year rule.
The bank's new stance appeared to signal a greater willingness to speak out against official, endemic corruption in Jakarta, and it underscores the seriousness of the latest scandal, which has already driven down the value of Indonesia's currency, the rupiah, and eroded faith in a massive plan to bail out the country's ailing banking system.
Baird's statement followed remarks in a speech here by the World Bank's vice president for East Asia, Jean-Michel Severino, who told a conference on capital markets that the scandal, involving the financially strapped Bank Bali, needed to be investigated quickly and openly to restore confidence to the bank-restructuring program.
"The World Bank remains deeply concerned over the situation with Bank Bali, and the broader implications for the bank restructuring program," Severino said. "I urge that the process be completed as quickly and transparently as possible, that details of the case be explained to the public, and that any wrongdoers be subject to the full force of the law."
The scandal involves a mysterious "commission fee" of nearly $80 million paid by Bank Bali as the price for recouping its inter-bank loans. Inter-bank loans are supposed to be guaranteed by the government, and no commission should have been paid, banking experts here said.
The huge payment raised suspicions because it went to a company controlled by a deputy treasurer of Habibie's ruling Golkar Party. Opposition politicians have accused Golkar of pressuring Bank Bali into making the payment, to be used as part of a war chest to ensure Habibie's reelection as president in an upcoming parliamentary session. They have said the money might be used to bribe members of parliament into voting for Habibie.
Habibie so far has not commented directly on the scandal and has refused to bow to opposition demands that he suspend his finance minister and other top economic officials until the case is resolved. But Habibie aides said the president will make a statement soon.
The international lending community has become concerned about the case because it touches the single most important institution set up here after the 1997-98 economic crisis, the Indonesian Bank Restructuring Agency, or IBRA, which until now had enjoyed a reputation for efficiency and integrity. At issue is the multibillion-dollar bank restructuring under which foreign banks were supposed to get involved in taking over the management of ailing Indonesian banks in exchange for providing badly needed capital.
The World Bank and the International Monetary Fund called on the government last week to widen the probe beyond Bank Bali to include the central bank and all other banks that may have benefited from the loan-guarantee program, established in late 1997 to help shore up confidence as the country's banking system was collapsing under a mountain of bad debt.
The fear is that the Bank Bali scandal may be, in the words of opposition leader Amien Rais, "just the tip of the iceberg."
The IMF has also called on Indonesia to allow PricewaterhouseCoopers, the international accounting firm, to audit the central bank.
Political analysts here have said the Bank Bali case, being exhaustively covered in the local press each day, may have severely hurt Habibie's November reelection chances, reviving accusations that Golkar is the party of corruption. The case has exacerbated a split within the ruling party as a small reformist faction searches for ways to dump Habibie as Golkar's presidential choice.
The main beneficiary appears to be Megawati, who is seen as representing a clean break from the corruption of the past. Some analysts have speculated that the Golkar reform wing might now back Megawati over Habibie.