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Jakarta Post

Elephant in the room in Jiwasraya case

  • Esther Samboh

    The Jakarta Post

Jakarta   /   Fri, January 17, 2020   /   08:32 am
Elephant in the room in Jiwasraya case State-owned insurer Asuransi Jiwasraya is deep in financial trouble after failing to pay out on customers’ policies when they fell due. (Antara/Galih Pradipta)

If you wonder why you keep hearing the word “Jiwasraya” recently, here’s why.

State insurer Asuransi Jiwasraya is deep in financial trouble after failing to pay out on customers’ policies when they fell due. It turns out Jiwasraya promised customers hefty gains but invested their funds in questionable stocks. With several banks selling Jiwasraya products, there are fears that its failure could have a systemic impact on the financial services industry. Amid ongoing investigations, five big fish have been named suspects in the case, including tycoons Benny Tjokrosaputro and Heru Hidayat.

Then it was found that Asabri, another state insurer and pension fund manager for military and police personnel and Defense Ministry employees, has also allegedly been hit by “pump-and dump” stock market manipulation. Like Jiwasraya, hundreds of millions of dollars have been lost from Asabri’s investment portfolio.

Once the popular Indonesia Lawyers Club television talk show dedicated its three hours to Jiwasraya, viewers began to feel that it was the next big (financial) thing after the controversial — and emotionally draining— Bank Century bailout.

But fundamental differences distinguish the Jiwasraya and Asabri cases from the infamous Rp 6.7 trillion (US$490 million) bailout, which saw the courts and lawmakers question the then-vice president, as well as the finance minister—the latter holding tasbih (prayer beads) in her hand.

First, the government and House of Representatives are agreed on no taxpayer bailout for Jiwasraya, although the State-Owned Enterprises (SOEs) Ministry plans to inject up to Rp 2 trillion into a state insurance holding company to create a lifeline for Jiwasraya. Let us assume this is simply a business decision regarding a state firm rather than taxpayers’ money being funneled into a failing state enterprise.

Second, Jiwasraya is a nonbank financial institution, meaning no customer funds were guaranteed by the Indonesian Deposit Corporation (LPS)—another reason the government is avoiding a bailout of Jiwasraya. With Bank Century we saw the LPS doing the dirty work of funneling hundreds of millions of dollars from state coffers into a lender that had allegedly been embezzled by its owners.

Asabri, meanwhile, is doing just “fine” with “good” cashflow and assets, as SOEs Minister Erick Thohir said, and therefore will be able to cope with its investment losses.

The handling of the Jiwasraya and Asabri cases is good enough as firefighting measures go, but the elephant in the room remains: poor good corporate governance in our state firms, and weak oversight by authorities.

Without stronger enforcement and oversight, and putting the right people in power to apply good corporate governance, a time bomb waits to explode into another financial-service scandal. Just as a lack of fundamental action taken following Bank Century led to Jiwasraya.

True, authorities cannot forbid anyone wanting to invest in shady stocks, as Jiwasraya and Asabri did. After all, they were still legitimate shares listed on the stock exchange.

But as an institution with oversight of the performance of financial firms, and with the authority to enforce good corporate governance, the OJK simply doing its job is the least we might expect to safeguard the industry, and our investments.

When you invest your money in professional pension funds, or simply prepare for a rainy day with adequate insurance, you have the right to assume the institution taking care of your precious money is above board – if only because the authorities should be watching them.

Indeed OJK regulations require insurers to file monthly periodic assessments. Insurance companies also must continually assess their risk and alert the regulator at least every two years or whenever they see fit. The OJK should have seen the Jiwasraya storm coming.

In 2018, only 18 supervisors were in charge of overseeing 137 insurance companies, according to a Bisnis Indonesia article. Staff shortages have become the OJK’s classic excuse in monitoring the financial services industry, not only insurance companies. Still, Jiwasraya is too big to go unnoticed, especially being a state insurer and given the size of its losses.

Now, the people who simply expected to deposit their money in a professional state financial institution, regulated and monitored by authorities, cannot cash in their policies that have matured. They may need to wait months for government efforts to salvage Jiwasraya to bear fruit.

Whether by injecting money into Jiwasaraya by forming a state insurance holding company, or waiting for an investor to buy stakes in the ailing state insurer, customers lose. Whatever the government’s plans for Jiwasraya, returning customer money should be the top priority, and everything else secondary.

As in the stock market, retail investors are the most vulnerable. This completely tarnishes the OJK, the Indonesia Stock Exchange (IDX) and the government’s agenda of persuading more individuals to invest in Indonesia’s financial markets.

Worse, the IDX also appears toothless about suspicious transactions, including the pump-and-dump practices that caused Jiwasraya’s calamitous losses.

The two businessmen suspected of graft in the case, Benny and Heru, sold off their stocks — which were in Jiwasraya’s portfolio — before the scandal exploded, causing Jiwasraya’s investment value to plunge.

The million-dollar question: Was the IDX not in the loop with the investigation carried out by the OJK, the Attorney General’s Office and the Supreme Audit Agency (BPK), which claimed to have been suspicious “for years”? Is it too much to expect the IDX to flag up the transactions as suspicious? How far can the IDX step in to protect investors’ funds?

The SOEs Ministry as the shareholder of state-owned enterprises, including Jiwasraya and Asabri, was no less disappointing. Citizens are entitled to modest expectations like having leaders with integrity who can enforce good governance in state firms.

With the Jiwasraya and Asabri cases, as well as the flag carrier Garuda Indonesia’s smuggling case, it is high time for the ministry to look into the leaders of Indonesia’s state enterprises.

Even if we are not customers of Jiwasraya, Asabri, Garuda or any other state enterprise, we still pay for them, as our taxes fund them.

Expecting better governance and oversight of entities that should serve us is a basic demand. Otherwise, we will be walking in circles, waiting for the next Century, or Jiwasraya, to unfold.