13 - Helping Hands

Summary

On the night of 4 September 1990, Jakarta bankers were stunned by a press release from the central bank unlike any they had seen. In a terse statement, Bank Indonesia announced that the board of supervisors — including the chairman — and the board of directors at PT Bank Duta had been fired by its majority shareholders following “operational mistakes” and foreign exchange losses. Bank Duta, widely considered to be Suharto's bank as its dominant shareholders were three foundations chaired by the president, was Indonesia's fifth largest privately owned bank. The dismissed bank chairman was Bustanil Arifin, Suharto's close ally and a good friend of Liem. Bustanil, a retired general, was Minister of Cooperatives as well as head of Bulog. And the losses incurred at the bank involved a senior bank executive, who happened to be Bustanil's son-in-law.

BANK DUTA: THE “FAVOUR-EXCHANGE” BANK

Bank Duta's “operational mistakes” turned out to be serious gambles on currency movements that caused the bank to lose more than twice its total capital. The Duta scandal encapsulated many elements of the murky and sometimes wild Indonesian business environment. Duta was a publicly listed company, yet there was a complete absence of transparency about its financial position as well as a woeful lack of prudent banking regulation. In the handling of the scandal, what showed to be functioning well was Indonesia's version of the “Favor Bank”, taking a term from American writer Tom Wolfe's 1987 novel The Bonfire of the Vanities. One character in the book, a lawyer, declares that “everything in the criminal justice system in New York operates on favors. Everybody does favors for everybody else. Every chance they get, they make deposits in the Favor Bank… It's saving up for a rainy day.” People who make regular deposits in the Favor Bank, he explains, put themselves in position to ask politicians for big favors.

Suharto's Indonesia operated as a kind of Favor Bank. Liem, who had given 30 per cent of BCA's shares to Suharto's eldest son and daughter, was arguably the biggest “depositor” in Jakarta's version. In June 1985, when Liem was squeezed by cement overcapacity and debt, the president returned the favour. At times, Suharto needed to call in favours, and Liem responded, as did others in the case of Bank Duta. The Salim Group reaped good dividends for providing needed deposits.