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. Last Updated: 07/27/2016

IMF: Banking Scandal May Hurt Recovery




JAKARTA, Indonesia -- Despite widespread agreement that Indonesia's battered economy is recovering, a banking scandal involving the ruling Golkar Party could deal it a heavy blow, a top IMF official warned Wednesday.


Hubert Neiss, the International Monetary Fund's Asia-Pacific director, said Indonesia's economic program has been working, as evidenced in the appreciation of the national currency, the rupiah, and banks' resumption of lending.


The IMF is leading a $43 billion program to bail out Indonesia after its meltdown in 1997 and 1998.


Indonesia is slowly climbing out of the steep recession that saw the economy shrink 13.7 percent last year.


The disclosure of the Bank Bali scandal has caused an uproar, unnerving investors in the currency and equity markets few weeks.


The scandal involves the clandestine transfer of around $80 million from Bank Bali, a bank taken over by the government, to a company controlled by a senior official in the ruling Golkar Party.


On Tuesday, the World Bank threatened to halt funding for Indonesia if it doesn't swiftly and satisfactorily conclude an investigation.


Last week, the IMF called for an audit of the central bank to ascertain how the funds went missing.


Indonesian authorities caved in on Tuesday, when deputy governor Achjar Iljas announced that an international firm will be allowed to audit Bank Indonesia.