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Thursday, 16 December, 1999, 10:59 GMT
Bank Bali deal collapses

Habibie voting Bank Bali is accused of trying to fund former President Habibie's re-election campaign


By Jonathan Head in Jakarta

A deal between a British and an Indonesian bank which was seen as an important step towards Indonesia's economic recovery has collapsed.

The London-based Standard Chartered Bank pulled out of its agreement to buy a stake in Bank Bali after a dispute between the management of the two banks.

The deal had already run into difficulties earlier in the year when Bank Bali was embroiled in a scandal involving the transfer of funds to a business connected to the then ruling Golkar Party.

Massive corruption

Corruption and mismanagement within Indonesia's banking sector has taken place on a staggering scale.

The estimated cost of restoring the banks to health after their wild borrowing spree over the past few years is US$90 billion, which represents two-thirds of the country's entire GDP.


woman at foreign exchange Analysts predict the failed deal will discourage foreign investment
The Indonesian government is paying part of that cost but it is also trying to encourage foreign companies to buy stakes in the banks.

Standard Chartered's agreement to purchase 20% of Bank Bali last April was the first such offer and it was seen as a test case.

Since then though almost everything has gone wrong with the deal.

Scandal

In July Standard Chartered discovered that US$70m had been secretly paid out of Bank Bali to a business connected to the then ruling Golkar Party.

The money was paid back but opposition parties accused Bank Bali of trying to fund former President Habibie's re-election campaign and the IMF suspended its loans to Indonesia until an official investigation into the scandal was published last month.

Once that happened, Standard Chartered thought it could proceed with its planned takeover of Bank Bali but it ran into strong opposition from the local staff, who accused the new expatriate management of imposing unfair terms on the bank.

Protests

Protests were mounted outside the bank's headquarters and local politicians joined the campaign to have the deal annulled.

Standard Chartered has now finally capitulated, saying it was put in an untenable position by what it called mis-information published in the Indonesian media.

Whatever the real cause of the deal's collapse, it is a serious setback to a government desperate to restore investor confidence in Indonesia's shattered economy.

And it will not help Indonesia's case for futher assistance from international organisations like the International Monetary Fund.

It has said that resolving the Bank Bali case is one of the crucial pre-conditions for resuming lending. The IMF has lent Indonesia more than 40bn to help it through the financial crisis.

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See also:
03 Nov 99 |  The Economy
IMF set to resume Indonesian loans
28 Oct 99 |  The Economy
Rebuilding Indonesia's economy
22 Sep 99 |  The Economy
Police deny Indonesia bank scandal cover-up
27 Sep 99 |  Asia-Pacific
Indonesia snubs Australian trade
21 Oct 99 |  Asia-Pacific
Analysis: New hope for Indonesia?

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