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Saturday, October 9, 1999 Published at 05:49 GMT 06:49 UK

World: Asia-Pacific

Baligate threatens Habibie's future

Economic problems helped bring down President Suharto in 1998

By regional analyst Kieran Cooke

Ever since he came to office early last year, Indonesia's President BJ Habibie has been fighting a series of crises which, like a gathering brush fire, have engulfed his presidency and threatened Indonesia with economic ruin and a prolonged period of violent upheaval.

Indonesia Flashpoints
There have been serious outbreaks of intercommunal violence in several parts of the country, while events in East Timor have done serious damage to Indonesia's standing in the world.

But within Indonesia the main focus of attention is still the economy. With the selection of a new president by the country's parliament less than two weeks away, Mr Habibie's economic management is being seriously criticised.

A multi-million dollar banking scandal involving some of Indonesia's most senior officials could finally put an end to any hopes Mr Habibie has of hanging on to the presidency.

Bad debt

The affair started quietly enough. Last March, one of Indonesia's largest banks, Bank Bali, faced with a mountain of bad debts, applied for a government rescue.

[ image: President BJ Habibie has denied involvement]
President BJ Habibie has denied involvement
As part of a wide ranging restructuring programme of the country's beleaguered banking sector, the government decided to put a portion of Bank Bali up for sale.

Standard Chartered, the British bank, in the course of investigations prior to making an offer for a 20% stake in Bank Bali, found a black hole in the bank's books.

A sum of $70m had found its way from the bank's accounts to a company controlled by the deputy treasurer of Indonesia's ruling Golkar Party, headed by Mr Habibie. Among those involved in the company is a brother of Mr Habibie.

Since he came to office early last year, Mr Habibie has promised a more open administration, free of the corruption and nepotism which characterised the previous regime of former president Suharto.

Corruption continues

But the Bank Bali scandal has revealed that corruption is alive and thriving at the highest levels of government.

[ image: Rice prices have risen as the country's economy suffers]
Rice prices have risen as the country's economy suffers
Auditors who were called in to make a detailed examination of the Bank Bali affair produced a devastating report: they revealed what they termed a web of fraud, non compliance, irregularity, misappropriation, undue preferential treatment, concealment, bribery and corruption involving various institutions.

Many senior government officials were named in the report.

The government has refused to make the full report public. Various factions within Golkar have been accused of using the Bank Bali money to buy parliamentary votes to ensure Mr Habibie's re-election as president.

Investigation so far of the scandal, commonly referred to as Baligate, has revealed no direct link to the president.

Mr Habibie has strenuously denied any role in the affair and has said the political aspects of the scandal have been exaggerated.

A parliament determined to show it is no longer a rubber stamp assembly has insisted the government disclose all the facts: it has alleged the finance minister and the governor of Bank Indonesia are among those involved in the scandal.

Popular anger

As revelation has followed revelation, the Indonesian public has grown increasingly angry.

Street demonstrations have called for the resignation of Mr Habibie and many of his senior officials. Government critics say a cover up is underway.

The affair has wider ramifications: following the Asian economic crisis the International Monetary Fund put together one of its biggest ever rescue packages for Indonesia.

Reform of the banking sector was a key element of that programme. The IMF has now suspended any payment of the $43bn rescue package: it says the Bank Bali scandal must first be resolved.

Each day the scandal seems to become murkier. The former head of Bank Bali has gone into hiding, saying various people are out to kill him.

Meanwhile a mysterious, unnamed group has been buying up Bank Bali shares. Indonesia's bank restructuring programme has been frozen.

The IMF has warned of a potential disaster. For now, Mr Habibie fights on: but, in the end, Baligate could be the single most important issue which will force him out of the presidential palace.

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