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Watchdogs refuse to act on big losses
Aditya Suharmoko , The Jakarta Post , Jakarta | Tue, 09/23/2008 10:04 AM | Headlines
The central bank and the Finance Ministry have refused to take blame for the compromised supervision of foreign banks operating in Indonesia, following hefty losses suffered by local investors after buying into products offered by the banks.
The investments turned sour after U.S. financial services giant Lehman Brothers Holdings Inc. collapsed last week, sending both institutional and individual investors with portfolios exposed to Lehman reeling from losses.
Bank Indonesia spokeswoman Dyah Makhijani on Monday told The Jakarta Post if the investors spent their money in offshore investment products, neither BI nor the Capital Market Supervisory Agency (Bapepam-LK) could take any responsibility.
"We do not oversee any foreign investment products, although they are offered by banks," she said.
In addition to managing monetary affairs, BI is also tasked with supervising local and foreign banks operating in the country.
However, Dyah said she could not comment further until she learned about the agreements between the banks and the investors.
She also refused to explain which institutions were responsible for issuing licenses for the foreign banks to sell such investment products, which eventually could not be safely certified by the authorities.
Dozens of investors flocked to Citibank Indonesia's Pondok Indah branch in South Jakarta last week to seek explanations over a massive probable loss in their investment with the Citigold wealth management banking program, following the Lehman bankruptcy.
The product is exposed to Lehman notes, which are linked to the performance of the Hang Seng China Enterprises Index, Korean KOSPI 200 Index and the Tokyo Stock Exchange REIT.
Most affected investors, from the middle to upper-income bracket, were offered lucrative investment products by the banks' wealth management divisions under complicated contracts.
Citibank Indonesia said it would only comment on the issue on Tuesday.
The Citibank investment trouble is just the tip of the iceberg, with several foreign banks operating in Indonesia expected to keep the problem under wraps for fear of doing damage to their credibility.
The Indonesian unit of UK-based Standard Chartered admitted there were several local investors whose investments had been exposed to Lehman assets. However, the bank refused to disclose whether they suffered any losses.
Finance Minister Sri Mulyani Indrawati told the Post the investment woes were the responsibility of the central bank as the watchdog of foreign banks operating here.
"BI should be questioned over the issue. It supervises the banks," she said.
The ministry's Bapepam-LK bureau head of legal and regulatory affairs, Robinson Simbolon, said the agency could only take action if the investment products were certified by the agency.
"If they are issued by banks, BI should take the blame. If they are issued by securities houses, then we are the ones who'll get toasted," he said.
"But if the investment products are basically not Indonesian products, it is not our job to protect the investors."
A source at Bapepam-LK said the agency had a few years ago attempted to supervise the investment products offered by the foreign banks. However, he said the banks refused to comply, saying BI was the only institution authorized to do the job.
Rahadi Widodo (not verified) — Wed, 09/24/2008 - 10:01am
It's just like investing in property in Singapore as the funds are offshore, it has nothing to do with Indonesia.
Mohan (not verified) — Wed, 09/24/2008 - 6:17am
It is simple greed to earn high interest without understanding the product and lost the money. No one should be blamed except the person who invested his money.
Mark from USA (not verified) — Wed, 09/24/2008 - 1:03am
Upper middle and upper income customers who utilize a bank's wealth management services should understand that they are investing NOT depositing. Bank supervision seeks to insure that the value of depositors' accounts in a bank are safe from fluctuation. An investor by contrast is paid a higher rate of return for taking on risk. Bank customers who use wealth management services should be informed by the bank that these products have a higher rate of interest than a bank deposit because they have inherent risk. Players in the shares market cannot cry to the government when the price of their shares decline. Consumers of investment products brokered by banks whether foreign or domestic have no basis for complaint unless the bank did not disclose that these products are investments and not deposits. Supervision for banks in this case ends at ensuring that the customer is informed. You can't have high returns and zero risk.
ROD FROM SYDNEY (not verified) — Tue, 09/23/2008 - 5:49pm
Hi there,
Interesting take on Investing, Investing is gambling, pure and simple you are gambling on the share market. If the market goes down then you lose your money. Working for a major investment bank in sydney australia, you can see peoples money vanish quickly when the market takes a nose dive. It is not the central banks role to regulate what the banks are offering in terms of foreign investment of banks not operating on the Indonesian Market, not even the the reserve bank of australia does that, it would be a mine field for the central bank to do so. Maybe do some more research when writing the article. I know people have lost money and it is an emotional thing, but it is not your central banks role.
Irene (not verified) — Tue, 09/23/2008 - 10:52am
Why the hell are legal matters in Indonesia a grey issue? Either BI insures the investment products or it doesn't. Which one is it?
If BI doesn't regulate foreign investment portfolios, then who does? What's to stop the Russian Mafia (for example) from opening up a fake investment firm here and fleecing everybody?
Why does the finance minister not know BI's scope? SHE should be questioned, along with BI.
Why does Bappepam need compliance from banks to regulate them? That's like saying I store several tonnes of TNT in my back yard but I don't want health and safety officials to regulate it.
This story is typical of what is wrong in Indonesia: everyone tries to perceive a balanced view of any issue. There is no balanced view. There's the truth, and anything else is a lie.