Polaris dispute may not be in the
BAG By Bill Guerin
JAKARTA -
A protracted commercial dispute involving Polaris
Software Labs, one of India's biggest software groups,
and Bank Artha Graha, an Indonesian bank linked to the
military, was settled out of court on Monday, with the
Indian software company agreeing to make full
restitution to the bank for a sum of US$1 million (Rp9.2
billion) and marking the close of a long-running
controversy that created furor in India after the
arrests of Polaris' vice president and chief executive
in Jakarta in 2002.
This episode, critics say,
as well as another involving Tempo, Indonesia's oldest
weekly newsmagazine, once again reflects Jakarta's
failure to develop a credible judiciary that can staunch
the flow of power from powerful, well-connected
individuals. Moreover, it is the country's corrupt legal
system that remains a major deterrent to overseas
investment.
"I don't know any other country that
arrests business leaders on the grounds of commercial
disagreements. Obviously, it will have implications for
the industry - there are going to be increased concerns
about doing business in Indonesia," Kiran Karnik,
president of India's National Association of Software
and Service Companies (NASSCOM), said in December 2002
as Polaris' chief executive, Arun Jain, and vice
president, Rajiv Malhotra, were languishing in jail in
Indonesia's capital.
The money is in the
BAG In 1989, along with the army's pension fund,
Kartika Eka Paksi, controversial ethnic-Chinese tycoon
Tomy Winata acquired the ailing Bank Propelat and
renamed it Bank Artha Graha (BAG), which means,
coincidentally, "House of Money".
In January
2001 Chennai-based and Mumbai-listed
information-technology company Polaris Software Labs
clinched a $1.3 million deal with BAG to license,
customize and implement "BankNow", a software system
that would leave BAG's competitors behind. Though
Polaris promised to roll out a snag-free system within
an agreed timeline of four months, the bank said that a
year later, and after payment of $662,000 due under the
contract, the system had not been installed.
When attempts to resolve the problem failed, BAG
revoked the agreement and on November 27, 2002, demanded
its money be returned, plus damages amounting to $10
million for failure to fulfill the contract. For good
measure, BAG filed police complaints against Polaris.
The events that followed not only overshadowed
the commercial dispute but also appeared to be building
up to a full-scale political spat between both
countries. Polaris' two top executives Arun and Rajiv
went to Jakarta in December 2002 to meet BAG officials
and discuss the termination of the contract.
Polaris then agreed to refund only the down
payment. But BAG allegedly detained the Indians in its
offices and later lodged a complaint with the local
police, who took the executives into custody (see India ruffled over Indonesia's heavy
hand, December 19, 2002).
Polaris insists
that its executives were prevented from leaving the
bank. "When they tried to leave, all the exits including
lifts [elevators] and staircases were blocked by BAG's
guards and several others, who looked like bouncers,"
the company said in a news release.
The pair
were released a week later but not before New Delhi had
kicked up a diplomatic storm that threatened to draw the
leaders of the two countries, President Megawati
Sukarnoputri and then-prime minister Atal Bihari
Vajpayee, into the dispute.
Indonesia's
reputation was once more on the line as Polaris was
portrayed in the Indian and international media as yet
another victim of Indonesia's unpredictable commercial
environment in which local companies and banks take the
law into their own hands. BAG, on the other hand,
claimed that its image was on the line and that it was
the one that had been tarnished by the publicity arising
from the dispute.
Eventually, after more
threats, both sides agreed on January 23, 2003, to
settle under Singaporean law, through the Singapore
International Arbitration Center (SIAC), as provided for
in the contract. The government-controlled Singaporean
media quickly seized the chance to sing the praises of
the tiny republic's reputation as a preferred regional
center for the arbitration of commercial disputes. If
justice is done, and seen to be done, Singapore's legal
system would become an increasingly indispensable part
of the infrastructure for doing business in the region,
or so went the claim.
BAG picks up
Tempo Less than two months later, Winata himself
reacted fiercely to allegations made by Tempo magazine
that insinuated he had orchestrated a fire in Jakarta's
biggest open-air market, Tanah Abang, in the hope of
securing a major urban-renewal project. The fire
destroyed the facility.
The story included
Winata's denial of a renovation plan, but after the
article was published, some 200 protesters led by a
Winata associate entered Tempo's headquarters and
punched several reporters and editors. A series of
charges, suits and counter-suits followed, including one
by Winata seeking some $23 million in damages from the
magazine.
Then in March this year, Hartono
Setiawan, a former corporate client of the bank, told
the Central Jakarta District Court that Artha Graha
security guards' threats of violence had always been a
feature of how Winata did business.
Hartono had
been summoned to the trial by Tempo defense lawyers to
testify about Winata's image among his competitors in
the business world. In his testimony, Hartono claimed
that the bank's security guards occupied and tried to
seize his newly constructed Planet Bali Hotel in 2000,
accusing him of defaulting on a 1996 loan.
"Without prior notification of the amount of my
debt or my default on said loan, Tomy's men just
occupied the hotel, sealed it off and screened those
entering and exiting the hotel," he said, pointing out
that, though he didn't know it at the time, his debt to
Winata had by then reached Rp64 billion ($7.62 million)
after soaring from the original amount of Rp8.5 billion
borrowed in 1996 before the 1997 regional financial
crisis hit.
"Tomy or the bank officials never
informed me of the amount of my debt. When I had
difficulties repaying, Tomy forced me to immediately
hand over all my property and other assets in Batam,
Jakarta, Surabaya and Bali," Hartono told the court.
Earlier in the trial, Tempo journalist Abdul
Manan testified that he was assaulted by one of Winata's
top security men, David Tjioe, while police, who were
present inside the Tempo office building on March 8,
2003, looked on but did nothing.
The Central
Jakarta District Court ordered Tempo magazine to pay
Rp500 million in damages to Winata and to run a public
apology, in several media outlets for three days, for
the Tanah Abang fire article. Tempo's chief editor,
Bambang Harymurti, and journalists Ahmad Taufik and T
Iskandar Ali were charged with violating Article 14(1)
of the Criminal Code for publishing a report that could
provoke unrest.
Prosecutors have since demanded
that the court hand down two-year prison sentences to
Taufik and Ali for inciting public unrest and defaming
Winata. A verdict is expected soon.
Corruption a deterrent to overseas
investment Diplomatic pressure has been needed in
the past to force Jakarta to reverse controversial
decisions. In 2002 a court ruled that the Indonesian
unit of Canadian life insurer Manulife Financial Corp
was bankrupt, even though it had made profits. The
ruling came after a dispute between Manulife and its
former Indonesian joint-venture partner. After protests
from the Canadian government, as well as threats by the
International Monetary Fund (IMF) to withdraw support
for Indonesia's international aid program, the Supreme
Court overruled the bankruptcy decision.
While
Polaris has agreed to make "full restitution" of $1
million received under the agreement, BAG has agreed to
return all software provided by Polaris, the software
company said in statement issued to the Bombay Stock
Exchange this week.
These two episodes, however,
are yet another reminder of Jakarta's failure to develop
a judiciary that can restrict the flow of power from
individuals like Winata.
Winata's rise to power
traces back to the era of former president Suharto,
when, like other ethnic Chinese of his ilk, he built
friendships within army circles that later paid off
big-time.
In one example, Jakarta city
authorities forcibly evicted squatters to make way for
Winata's proposed multibillion-dollar development that
later housed BAG and the Jakarta Stock Exchange complex.
But in 1996, his ties with the military spurred
allegations that Winata's property near the Jakarta
Stock Exchange had been used as a staging area and
support base by a group of vigilantes and former
soldiers who stormed the Jakarta headquarters of
President Megawati's Indonesian Democratic Party of
Struggle (PDI-P) - killing several people.
The
tycoon's associates denied the charges, but last
September Megawati's husband, Taufik Kiemas, was quoted
as saying Indonesia needed more "crazy men" like Winata,
willing to invest in the country's remote provinces.
Bill Guerin has worked for 19 years in
Indonesia as a journalist and editor. He specializes in
business/economy issues and political analysis related
to Indonesia. He has been a Jakarta correspondent for
Asia Times Online since 2000 and has also been published
by the BBC on East Timor. He can be reached atsoftsell@prima.net.id.
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