Subject: IMF Fumes As It Waits For Indonesia Scandal Report
Date: Thu, 9 Sep 1999 20:16:01 EDT

Dow Jones Newswires September 9, 1999

IMF Fumes As It Waits For Indonesia Scandal Report


WASHINGTON -- While appalled at the "humanitarian disaster" unfolding in East Timor, International Monetary Fund officials are also fuming at signs that Indonesia is stalling on its promise to get to the bottom of the so-called Bank Bali scandal.

Stanley Fischer, the IMF's first deputy managing director, strained to make this point as diplomatically as he could during a media briefing earlier Thursday.

However, he stressed that the IMF views as a "huge issue" allegations that around $70 million was transferred out of Bank Bali earlier this year to the account of a senior official in the ruling Golkar Party.

Indonesia's International Review Committee, chaired by former finance minister Mar'ie Muhammad, was directed to investigate and it authorized PricewaterhouseCoopers to conduct an audit of Bank Bali.

The fate of this report was uppermost in Fischer's mind when he reviewed developments in Indonesia Thursday.

"It should have been presented to Mar'ie Muhammad, who has been appointed to deal with these issues as one of the most respected men in Indonesia," Fischer said.

"And there seem to be delays in giving him the study, and there seem to be questions about precisely what is in that study. These are the issues that have to be resolved," he said.

Fischer said the restructuring of Indonesia's banking sector is "at the heart" of the IMF's $12-billion loan agreement with Jakarta.

IMF Might Face "Extremely Difficult Situation"

The government is pressuring the banks, many of them state-owned, to deal with their bad debts or face closure. Some banks are seeking to avoid closure and bolster their capital reserves by collecting long-overdue debts.

"If that (money) is being used for political purposes, which is what the charge is, then we're in an extremely difficult situation," Fischer said.

The crisis in East Timor represents a double-edged sword for the IMF, according to some within the IMF.

International outrage over Jakarta's apparent antipathy toward the slaughter of East Timorese provides the IMF with determined political support for any future steps it takes to punish Indonesia.

However, it also deflects attention from what might be the most dramatic public exposure of official corruption in Indonesia through the disclosure of the Bank Bali scandal.

Regardless, unless Jakarta takes steps to facilitate a swift and full examination of the Bank Bali scandal, the IMF will suspend staff missions - and therefore further loan installments - to Indonesia.

IMF management will consider whether they should send the September staff mission to Jakarta during meetings Friday and over the weekend.

Neiss Says Next IMF Staff Visit On Hold

Hubert Neiss, the IMF's director for Asia and the Pacific, made it clear in an interview on Cable News Network earlier Thursday that the IMF team is unlikely to be packing its bags in coming days.

"The IMF mission is presently on hold," Neiss said. "The decision (to send it) at this point hasn't been made."

He added the IMF hasn't yet "threatened to cut off funding" but added that the IMF will work with the Indonesian authorities only "under the right conditions."

"What we are doing is to review the situation and decide the appropriate time when we can have the next renewed discussions" on another installment from the $44 billion international rescue package for Indonesia, Neiss said.

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