The Bank Bali scandal occurred in Indonesia in 1999 when Golkar Party officials colluded with the Indonesian Bank Restructuring Agency (IBRA) to coerce Bank Bali chief Rudy Ramli to pay an illegal commission of Rp546 billion (then equivalent to about US$80 million) to private company Era Giat Prima in order to collect Rp904.6 billion owed by two banks taken over by IBRA.
Part of the funds were used to support then-president B.J. Habibie's re-election bid, but his accountability speech was rejected by the nation's top legislative body after the scandal broke. The scandal was widely referred to as Baligate (after Bank Bali and the Watergate scandal). Most of those involved, including Golkar officials and Habibie aides, were either acquitted or not even prosecuted.
Background The 1997-98 Asian financial crisis resulted in the collapse of 64 Indonesian banks. Numerous problematic banks were taken over by the government, which restructured and merged some of them. Prior to the crisis, Bank Bali was Indonesia's fourth-largest privately owned bank and was considered well managed.
Bank Bali had extended interbank loans to Bank Dagang Nasional Indonesia (BDNI), Bank Umum Nasional (BUN) and Bank Tiara Asia (Tiara) amounting to Rp1.477 trillion of principal and interest by 31 December 1998.
On 4 April 1998, BDNI, BUN and Tiara were among seven Indonesian banks placed under government supervision because of massive liquidity problems. Their obligations and assets were transferred to IBRA, which had been formed in January 1998, representing the Indonesian government.
A March 1998 joint decree of guidelines issued by IBRA and Bank Indonesia outlined the requirements for eligibility of claims for payment under the government's blanket guarantee for bank loans.
By 11 January 1999, the balance of Bank Bali's interbank loans, after being offset by its liabilities to BDNI and Tiara, and adjustment for foreign exchange losses, amounted to Rp1.235 trillion, comprising Rp869.8 billion for BDNI, Rp327.3 billion for BUN and Rp38 billion for Tiara.
Also in 1999, President B.J. Habibie was seeking re-election, which would require support from a majority of Golkar Party's 27 provincial chapter heads, and then support from members of the People's Consultative Assembly (DPR). In an effort to obtain this support, Habibie's top advisor, Achmad Arnold Baramuli, organized the raising and distribution of funds.
Events Meetings, memos and requests Bank Bali president director Rudy Ramli, who had inherited the bank from his father in 1992, was unable to reclaim Bank Bali's interbank loans from IBRA by January 1999. He needed to collect the debts to meet capitalization requirements and prevent IBRA from taking over the bank. Under the government's bank guarantee scheme, the funds should have been automatically reimbursed to Bank Bali.
In October 1998, Rudy's wife informed him that property tycoon Djoko Tjandra wanted to meet him. Rudy was later pressured by Djoko Tjandra to use the services of his debt collection company, PT Era Giat Prima (EGP), which agreed to help Bank Bali recover its money from IBRA, in return for EGP receiving an enormous commission of 60% of all proceeds. EGP was owned by Djoko Tjandra and run by Setya Novanto, who was deputy treasurer of Golkar Party and part of Habibie's re-election team.
On 11 January 1999, Bank Bali and Setya Novanto signed a cessie agreement (a type of loan syndication) for recovery of its interbank loans, amounting to Rp598.1 billion owed by BDNI and Rp200 billion owed by BUN. The agreement was not recorded in Bank Bali's official report at the time, and was not registered with Bank Indonesia. Another Rp38 billion was to be recovered from Tiara via a cessie agreement with a company called PT Persada Harum Lestari (PHL).
On 11 February 1999, a meeting was held at EGP director Djoko Tjandra's Hotel Mulia in Jakarta to discuss the Bank Bali credit issue. Among those present were: Rudy Ramli, Djoko Tjandra, Bank Bali director Firman Soetjahja, Supreme Advisory Council (DPA) chairman Arnold Baramuli, State-Owned Enterprises minister Tanri Abeng, Bank Indonesia governor Syahril Sabirin, IBRA deputy chairman Pande Nasorahona Lubis, and EGP president director Setya Novanto. Most of them later denied attending the meeting.
On 18 February 1999, Pande Lubis instructed Erman Munzir, the director of banking development at Bank Indonesia, to re-examine Bank Bali's claims. Erman assigned the task to a team from Bank Indonesia's bank examination division. On 22 March 1999, the team concluded that Bank Bali's claims were eligible. Erman sent a letter to IBRA chairman Glenn Yusuf, informing him of the conclusion and mentioning the cessie agreement between Bank Bali and EGP.
On 29 March 1999, EGP issued two letters, authorizing Bank Bali to collect its loans and interest from BUN and BDNI on its behalf.
On 9 April 1999, IBRA again rejected Bank Bali's claims, saying there needed to be an agreement from the finance minister and Bank Indonesia. On 14 April 1999, Pande Lubis sent a memo to IBRA's Glenn Yusuf, recommending immediate payment of the Bank Bali claims.
Rudy was still desperate to inject funds into Bank Bali, so he appointed JP Morgan to raise investors. JP Morgan soon shortlisted three serious potential investors: Citibank, ABN Amro, and GE Capital. According to Rudy, Citibank offered to buy Bank Bali's credit card business - then the second-largest in Indonesia - for Rp1.5 trillion, which would cover the Rp1.4 trillion he needed to strengthen his bank's capital. But JP Morgan disagreed with the proposed sale, so Rudy accepted an offer from GE Capital, but the deal was rejected by Bank Indonesia and IBRA. Rudy said Bank Indonesia instead pushed him to have Standard Chartered invest in Bank Bali. On 22 April 1999, in front of reporters at Bank Indonesia, Rudy signed an agreement for Standard Chartered to buy a stake in Bank Bali, with negotiations to conclude within three months, by 22 July 1999.
On 12 May 1999, Rudy Ramli met with then-finance minister Bambang Subianto at the latter's house to ask for help to cancel the agreement with EGP. Bambang later admitted to holding at least three meetings that month with Rudy and other officials.
On 14 May 1999, the March 1998 joint decree on requirements for eligibility of claims for payment under the government's blanket guarantee was amended to make Bank Bali's claims eligible for payment.
On 26 May 1999, Rudy met with Golkar figure Marimutu Manimaren and Habibie's associate Hariman Siregar at Jakarta's Ascott Apartment to ask for their help to get the payment to EGP canceled. Manimaren reportedly said that RI-1 (a reference to President Habibie) needed "only Rp300 billion".
The transfer Djoko Tjandra had repeatedly urged IBRA chief Glenn Yusuf to approve a Rp904 billion payment to Bank Bali, but Yusuf declined. When Yusuf was in New York on 1 June 1999, his two deputies, Pande Lubis and Farid Harijanto, authorized the payment in his absence, even though it was a Sunday night. That night, the transfer of Rp904.6 billion was approved by Bank Indonesia and made by IBRA to Bank Bali for its claim to BDNI. Manimaren and Hariman asked Rudy to immediately transfer the Rp546.4 billion fee to EGP. Firman Soetjahja then transferred the fee on 3 June 1999. On that day, the EGP account began transferring funds to companies and officials, including Golkar leaders.
According to Rudy Ramli's journal, he met on 29 June 1999 with tycoon Anthony Salim and Habibie's younger brother Timmy Habibie. Anthony warned Rudy that the deal with EGP would cause problems because Djoko Tjandra had been boasting that he had "bought off Patra Kuningan [President Habibie]" with Rp300 billion. However, Timmy Habibie said the money received was only Rp200 billion via Tanri Abeng.
The scandal breaks In April 1999, Standard Chartered agreed to purchase 20% of Bank Bali, subject to an audit of the bank's accounts. During this due diligence examination, it discovered a shortage of Rp546 billion – the money paid to EGP. The loss was reported by Standard Chartered on 20 July 1999.
Despite the discovery of the loss, a party still went ahead on the night of 22 July 1999 to celebrate Standard Chartered's planned purchase of a stake in the bank. About 500 people attended the lavish event for executives and senior staff of Bank Bali and Standard Chartered at Jakarta's five-star Hotel Shangri-La. But the following day, Bank Indonesia announced Bank Bali had been taken over by the government because it failed to meet a capital adequacy ratio requirement; however, the sale to Standard Chartered would go ahead. On 26 July 1999, Standard Chartered announced it had taken managerial control of Bank Bali.
At a public seminar on banking in Jakarta on 30 July, a banking law analyst named Pradjoto was asked why Standard Chartered had not finalized its investment in Bank Bali, as a three-month deadline had passed in mid-July. Pradjoto replied that the deal had stalled because Bank Bali was "a victim of money politics". He explained that a hole had been found in Bank Bali's balance sheet. He said Rudy Ramli had been for more than a year trying to secure his claim from IBRA and Bank Indonesia without success until he was forced to pay a huge "commission" to use a "facilitation" service.
After news of Bank Bali's massive payment to EGP was reported by the media, Habibie's re-election team sought to contain the damage. Setya Novanto resigned as Golkar deputy treasurer. Then, on 14 August, Baramuli told the media that EGP would return its fee to Bank Bali, and the repayment was made a few days later.
IMF reaction and PwC audit Under pressure from the International Monetary Fund (IMF) to disclose the truth behind the scandal, Indonesia's parliament commissioned independent auditor PricewaterhouseCoopers to investigate the case. After a two-week inquiry involving 20 auditors, PricewaterhouseCoopers presented its 123-page report to the State Audit Agency (BPK) on 7 September 1999. The report found "numerous indicators of fraud, noncompliance, irregularity, misappropriation, undue preferential treatment, concealment, bribery and corruption" in connection with the transaction, and indications of the possible involvement of "ministers, senior officials and members of parliament".
The scandal led to the suspension, for several months, of almost US$1.4 billion in loans coordinated by the IMF, the World Bank and the Asian Development Bank to help Indonesia overcome its economic crisis. The IMF demanded the full release of the audit report, but BPK chief Billy Yudono cited banking secrecy laws as a reason for giving the report only to police. A 36-page summary, which does not mention names, was made public. The summary also omitted details of the fund flow, at the request of the BPK.
In October 1999, the Supreme Court ruled that a full copy of the report should be given to the national parliament. Parliament later complained that a page was missing from the report.
Botched cover-up and parliamentary inquiry Although Pradjoto, who broke the scandal on 30 July 1999, had not named Golkar as being involved, Baramuli responded by saying Pradjoto should be sued for slander against Golkar.
Gamma weekly news magazine on 15 August 1999 printed the transcript of a recorded conversation between Baramuli and Setya Novanto. The conversation, which had taken place on 7 August, featured Baramuli advising Setya on how to justify EGP's huge commission. In the recording, Baramuli told Setya the deal was like a normal distressed debt sale and to keep their names out of it and instead use Djoko Tjandra's name. Telecommunications expert Roy Suryo told parliament his analysis indicated the recording was genuine.
On 23 August 1999, Indonesia Corruption Watch published Rudy Ramli's journal of meetings surrounding the scandal.