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POLITIKANA.COM
Tak aneh jika banyak orang duduk, terhenyak, melihat kini bukan sebagai kini, melainkan sebagai masa silam yang cacat. Seperti Iskandar, mereka tak berbuat apa-apa. Sampai lewat jam malam yang tak mereka tentukan. Sampai korban jatuh, kadang-kadang tak sengaja.
~Goenawan Mohammad, Krisis
The following is a Q and A on Bank Century. I try to make it as simple as possible and i might have missed zeroes on the numbers. The math is fuzzy on this one. That paragraph I stole from Mr. Mohammad above sums it up better than I could.
Q: Was there a systemic risk to the Indonesian banking system if Bank Century was not rescued?A: I don’t know and I wouldn’t pretend like I do. I’m an anonymous blogger, I don’t second guess the Central Bank Governor and the Finance Minister.
If there was a systemic risk to the Indonesian banking system, how much would such a catastrophe cost?I have no idea. I have a day job and I don’t keep tabs of banks balance sheet for fun. Ask the Bank of Indonesia.
How much did the Bank Indonesia say it would cost?I remember they said it was 7.000.000.000 Rupiah back in November. Now Tempo said it’s 15.000.000.000. They also said the bailout cost 700.000.000 in November but now it actually costs 6.900.000.000. If you’re not good with math, it means they underestimated the cost by ten, in ten months. These people are not very good with math.
Are they any good with money?I’m not sure, but they are in charge of the money.
So they must rescue Bank Century in order to secure the national economy?Maybe. Vice President Kalla said it was not worth saving and called the Police on it, but he was a losing candidate in an election year and not very popular. He did the only reasonable thing to do when faced with criminally negligent bankers: he called the Police. The lawyers for Mr. Robert Tantular said the bailout was uneccessary since the Sinar Mas group was ready to buy the bank so Bank Indonesia won’t have to risk money to rescue the bank. Back in 2008, many governments chose to save their banks. President Bush and Obama both had to rescue the largest banks in America because some of them were too large to fail and presented too huge a risk. Governments in Scotland, UK, Germany all went through a great deal of trouble to help their large banks. As a rule however, governments don’t choose to safe small, obscure and criminally negligent bank to safe. In Iceland, one such bank needed rescuing and the whole country went bankrupt. PS: To the smartass economist on TVOne – you can not compare Century to Citigroup. Citi was the largest bank on the planet. Century was among the smallest banks in a two bit third world country. That’s like comparing orange to Audi.
Isn’t a systemic risk dangerous? Was not it a banking collapse that brought the riotous violence back then?Wrong. Those two are not the same question. “back then” 90+ banks were closed down. The bill for that mess was eventually 600.000.000.000 plus plus plus plus. It was the national grand theft robbery and some of those people are still out there with swanky cars. In November 2008, fewer than 20 banks were at real risk. The economy was bad, but the Indonesian banking system is in much better condition than it was in 1998. Bank Century was small and the management was cooperative. All volunteered to work with the authority right up the point when they were arrested. One of them flew from overseas to work help the bank. All of them now are sentenced to their well deserved prison time. You can tell Dorothy we’re not in Kansas anymore. Bank Indonesia was one of the only nine central banks that raised interest rate in in Q4 last year. They wouldn’t have done that unless they felt pretty confident of the Indonesian banking sector. Or their math was wrong, again.
Wasn’t there a bank rush with Bank Century, like in 1998?I’m not comfortable with the term ‘rush’ when it comes to spending trillions. The capital shift at the time involved some 15-20 trillion rupiah among 20 or so of Indonesia’s smaller banks. In Bank Century case, this so called rush involved mostly three large depositors: PT Timah Tbk. and Jamsostek – two state controlled institutions under instruction from the Minister of BUMN to be prudent in difficult times. The third depositor was Mr. Budy Sampoerna who kept some 3.000.000.000 rupiah with the bank. If you have that much money in a small bank, and the other big boys take their money out, because time was difficult and money was tight and that you’ve heard that the managers of your money are likely found criminally negligent, you would want your money back.Smaller depositors are pretty much f**ked. You see how matters got complicated at that point. No bank on earth would survive that on November 2008 – Bank Century was not rescued, it was dismantled. I wouldn’t speculate on motives but one thing was obvious: the risk specific to Bank Century was much better defined and measured relative to other banks in Indonesia.
If the cost was known to be much bigger, why did they say it was only 600.000.000?Because if you want to ask for money, it’s always easier if you ask in small amounts.
But they had no other option at the time, right?Not true. In an urgent crisis, all sorts of companies got in trouble and many of them had to ask for government money. A simple solution would be to call in for favors from the large depositors and asked for more time before they would withdraw the money. I am certain that the CEOs of PT Timah Tbk. and Jamsostek would be proud and happy to help their nation from an impending catastrophe. If they had a few extra hours, they wouldn’t have to stay up all night in a meeting to make important decisions. In the unlikely event that the two CEOs and Mr. Budi Sampoerna refused to take the call for the nation – which I doubt – the Century bosses were in the same building as the decisions were taken and Mr. Robert Tantular might be persuaded to call his CEO friends and tell them that unless they take that call from the government, they would not see a cent of their money. Trust me, people WILL take that call. Creditors never want anything bad to happen, they only want their money back. In the highly unlikely scenario where the creditors refused to cooperate, the government could just write a check to pay for it. The bill that night in November was was 600.000.000 or so. That looks like a lot but it’s not. Not when you’re one of the best run economy in the world at the worst time of a financial crisis. Indonesian government is not very rich but 600.000.000 was an affordable price. Relative to the cost in other countries, Indonesia paid floor bargain price to escape a devastating global economic crisis. 600.000.000 would not be enough to rescue Bank Century, true. But 600.000.000 was the price they had to pay so they didn’t have to stay up all night making important decisions. They would also have more time to redo their math.
Isn’t that exactly what they did?Wrong again. On November 2008, they wrote a check of 600.000.000.000 and a Promise to keep on paying. That’s how 600.000.000.000 in November 2008 became 6.800.000.000.000 in August 2009. By giving Bank Century away to LPS the government essentially wrote a blank check. LPS has no business running banks – it’s an agency tasked with guaranteeing specific amount of money using a specific pool of fund. It’s not even a bank. If Bank Indonesia wrote them a blank check, then LPS will continue to pay – it’s their job. A “blank check” is not a common practice in the banking sector. In many countries, it’s illegal. Most of the time only central banks are allowed to do that. We keep a finance minister around to make sure that they don’t. The bank could’ve used many, many other instruments to secure 600.000.000.000 overnight. You don’t have to be an economist or a banker, you can google it.
So what if it’s a blank check, it’s not government money anyway. Tempo magazine says so!Yes, but Tempo magazine is wrong in this. The government put the initial 4.000.000.000.000 back in 2005 when they created LPS in 2005. The agency was required as part of a large and reformed infrastructure to keep Indonesia safe from another economic catastrophe. In a probable scenario where another bank were to fail (God forbids) and Bank Indonesia decides to write another blank check (common sense forbids), LPS could get into serious trouble. It has now in its ‘non-governmental’ coffers some 18.000.000.000.000 and the bill for Century came to about a third of that already. To put differently, in that last quarter of 2008, LPS was the only thing between Indonesia and Shitcreek – if LPS were to fail, Indonesia will be so deep in Shitcreek it risks losing its way back anywhere less smelly. Here is something to ponder for everyone: what risk could possibly be higher than writing a blank check? I know guys who write risk management software for banks. The system went mental if you entered a blank check. LPS is part of the Indonesian government’s promise and commitment to its voters and citizens that they would not let what happened back then ever happen again. It’s a commitment from everyone. The bank paid the rest of the capital required and the government was trusted with its management. How is that not ‘government money’ escapes me.
LPS can afford such blank check, they had a lot of money! They can afford it.No, they can not. If Century was an approximate ballpark for small bank failures, then another three would destroy it. Given the extremely fragile nature of the global economy, it will be best to be prudent. Writing blank checks after midnight snacks doesn’t sound very prudent.
Mr. Maryono, current CEO of Bank Century and Mr. Firdaus, of LPS, both said to Mr. Wimar Witoelar the other night that the bank is now doing better?Sir, with the utmost of respect to the burden on your shoulders, but if anyone write me a blank check, I can also do your jobs. Both, even. 6.700.000.000.000 is a lot of money. I can refloat the Titanic with that much money. (Then I’ll get myself two Ford Mustang GTs for it, too. Raw power, reeking of adrenaline). Welcome to the world of Gordon Gecco. Bank Century was a small bank with three large depositors (and apparently, hundred smaller others that the government deemed not suitable to bother with). The bank ran a con scheme and was owned and managed by fugitives and criminals. When they found it in November, it was so far down Shitcreek the bank literally didn’t know how to find his way back. Unless you’re entering a rabbit hole, from that night in November since, the only way to go for you was up. It’s the law of physics that when you’re at the very bottom the only way to go is up. In the word of the laws, it would mean that if it didn’t go up, then the gentlemen were probably not doing their job.
So why only now make a fuss? It’s almost a year ago.The last payment on this blank check (for 630.000.000.000) was made in August 2009. That’s last month. For me, it’s also because I just realized that what they wrote in November was a blank check. A few nights ago, a Very Wise Master Jedi ran into me in a dinner thingy and though he probably didn’t realize that at the time, I noticed how passionately invested he was in the subject. He didn’t reveal anything to me – important people chat to important people, I sat with cigarettes and chat with the interesting ones – and the gentleman does not smoke, so I had barely fifteen minutes to chat. It took me four days to understand what he was so bothered about and I tried a little to educate myself in the subject. Tempo magazine, which is the only magazine worth reading in this country (and it’s available in English, too), ran a cover story on Century Bank and I taped it with post it notes. Other Jedis were extremely kind in their thoughts and opinion and I asked just about everyone. Vice President Jusuf Kalla, have been trying to say this for 10 months. I just didn’t understand him well. People on twitter gave me links and I googled the rest last night. I don’t subscribe to papers and I don’t watch tv much (they’re on, but mute). Geonawan Mohammad wrote a truly beautiful piece on his column, about Yudhistira, the eldest of the five Pandawas. It made me wonder of Yudhistira, the man who threw the most expensive dice roll in the history of mankind. He bet his Kingdom and spent years wondering around the woods paying the gambling debts and made epic. How a man with a distinguished gambling habit of betting his country could ever be chosen to lead anything. I could never really comprehend fully what he was talking about but I think it’s a lot to do with you being sincere. There are times in everyone’s life when we have to throw a dice and wish the gods cooperate, but in the most difficult of times, we would prefer a man we can trust. Trust is the definitive bond between the leaders and their people. When it comes to throwing dices and we have to do the twelve steps in the woods, we would much rather do it with the people we trust. Otherwise there’s no point of bothering to choose for a leader in the first place. What’s Next? (in Part 2)
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