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SoutheastAsia

Aug26,2004

Polaris dispute may not be in the BAG

ByBillGuerin
JAKARTAAprotractedcommercialdisputeinvolvingPolaris
SoftwareLabs,oneofIndia'sbiggestsoftwaregroups,andBank
ArthaGraha,anIndonesianbanklinkedtothemilitary,wassettled
outofcourtonMonday,withtheIndiansoftwarecompanyagreeing
tomakefullrestitutiontothebankforasumofUS$1million(Rp9.2
billion)andmarkingthecloseofalongrunningcontroversythat
createdfurorinIndiaafterthearrestsofPolaris'vicepresidentand
chiefexecutiveinJakartain2002.

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Thisepisode,criticssay,aswellasanotherinvolvingTempo,
Indonesia'soldestweeklynewsmagazine,onceagainreflects
Jakarta'sfailuretodevelopacrediblejudiciarythatcanstaunchthe
flowofpowerfrompowerful,wellconnectedindividuals.Moreover,
itisthecountry'scorruptlegalsystemthatremainsamajor
deterrenttooverseasinvestment.
"Idon'tknowanyothercountrythatarrestsbusinessleadersonthe
groundsofcommercialdisagreements.Obviously,itwillhave
implicationsfortheindustrytherearegoingtobeincreased
concernsaboutdoingbusinessinIndonesia,"KiranKarnik,
presidentofIndia'sNationalAssociationofSoftwareandService
Companies(NASSCOM),saidinDecember2002asPolaris'chief
executive,ArunJain,andvicepresident,RajivMalhotra,were
languishinginjailinIndonesia'scapital.

Challengesahead
forIndia'sIT
boom(Aug1,'03)
India'ssoftware
prosfaceglobal
ire(Mar13,'03)

The money is in the BAG

In1989,alongwiththearmy'spensionfund,KartikaEkaPaksi,
controversialethnicChinesetycoonTomyWinataacquiredthe
ailingBankPropelatandrenameditBankArthaGraha(BAG),
whichmeans,coincidentally,"HouseofMoney".
InJanuary2001ChennaibasedandMumbailistedinformation
technologycompanyPolarisSoftwareLabsclincheda$1.3million
dealwithBAGtolicense,customizeandimplement"BankNow",a
softwaresystemthatwouldleaveBAG'scompetitorsbehind.
ThoughPolarispromisedtorolloutasnagfreesystemwithinan
agreedtimelineoffourmonths,thebanksaidthatayearlater,and
afterpaymentof$662,000dueunderthecontract,thesystemhad
notbeeninstalled.
Whenattemptstoresolvetheproblemfailed,BAGrevokedthe
agreementandonNovember27,2002,demandeditsmoneybe
returned,plusdamagesamountingto$10millionforfailuretofulfill
thecontract.Forgoodmeasure,BAGfiledpolicecomplaints
againstPolaris.
Theeventsthatfollowednotonlyovershadowedthecommercial
disputebutalsoappearedtobebuildinguptoafullscalepolitical
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spatbetweenbothcountries.Polaris'twotopexecutivesArunand
RajivwenttoJakartainDecember2002tomeetBAGofficialsand
discusstheterminationofthecontract.
Polaristhenagreedtorefundonlythedownpayment.ButBAG
allegedlydetainedtheIndiansinitsofficesandlaterlodgeda
complaintwiththelocalpolice,whotooktheexecutivesinto
custody(seeIndiaruffledoverIndonesia'sheavyhand,December
19,2002).
Polarisinsiststhatitsexecutiveswerepreventedfromleavingthe
bank."Whentheytriedtoleave,alltheexitsincludinglifts
[elevators]andstaircaseswereblockedbyBAG'sguardsand
severalothers,wholookedlikebouncers,"thecompanysaidina
newsrelease.
ThepairwerereleasedaweeklaterbutnotbeforeNewDelhihad
kickedupadiplomaticstormthatthreatenedtodrawtheleadersof
thetwocountries,PresidentMegawatiSukarnoputriandthenprime
ministerAtalBihariVajpayee,intothedispute.
Indonesia'sreputationwasoncemoreonthelineasPolariswas
portrayedintheIndianandinternationalmediaasyetanother
victimofIndonesia'sunpredictablecommercialenvironmentin
whichlocalcompaniesandbankstakethelawintotheirown
hands.BAG,ontheotherhand,claimedthatitsimagewasonthe
lineandthatitwastheonethathadbeentarnishedbythepublicity
arisingfromthedispute.
Eventually,aftermorethreats,bothsidesagreedonJanuary23,
2003,tosettleunderSingaporeanlaw,throughtheSingapore
InternationalArbitrationCenter(SIAC),asprovidedforinthe
contract.ThegovernmentcontrolledSingaporeanmediaquickly
seizedthechancetosingthepraisesofthetinyrepublic's
reputationasapreferredregionalcenterforthearbitrationof
commercialdisputes.Ifjusticeisdone,andseentobedone,
Singapore'slegalsystemwouldbecomeanincreasingly
indispensablepartoftheinfrastructurefordoingbusinessinthe
region,orsowenttheclaim.
BAG picks up Tempo
Lessthantwomonthslater,Winatahimselfreactedfiercelyto
allegationsmadebyTempomagazinethatinsinuatedhehad
orchestratedafireinJakarta'sbiggestopenairmarket,Tanah
Abang,inthehopeofsecuringamajorurbanrenewalproject.The
firedestroyedthefacility.
ThestoryincludedWinata'sdenialofarenovationplan,butafter
thearticlewaspublished,some200protestersledbyaWinata
associateenteredTempo'sheadquartersandpunchedseveral
reportersandeditors.Aseriesofcharges,suitsandcountersuits
followed,includingonebyWinataseekingsome$23millionin
damagesfromthemagazine.
TheninMarchthisyear,HartonoSetiawan,aformercorporate
clientofthebank,toldtheCentralJakartaDistrictCourtthatArtha
Grahasecurityguards'threatsofviolencehadalwaysbeena
featureofhowWinatadidbusiness.
HartonohadbeensummonedtothetrialbyTempodefenselawyers
totestifyaboutWinata'simageamonghiscompetitorsinthe
businessworld.Inhistestimony,Hartonoclaimedthatthebank's
securityguardsoccupiedandtriedtoseizehisnewlyconstructed
PlanetBaliHotelin2000,accusinghimofdefaultingona1996
loan.
"Withoutpriornotificationoftheamountofmydebtormydefault
onsaidloan,Tomy'smenjustoccupiedthehotel,sealeditoffand
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screenedthoseenteringandexitingthehotel,"hesaid,pointingout
that,thoughhedidn'tknowitatthetime,hisdebttoWinatahadby
thenreachedRp64billion($7.62million)aftersoaringfromthe
originalamountofRp8.5billionborrowedin1996beforethe1997
regionalfinancialcrisishit.
"Tomyorthebankofficialsneverinformedmeoftheamountofmy
debt.WhenIhaddifficultiesrepaying,Tomyforcedmeto
immediatelyhandoverallmypropertyandotherassetsinBatam,
Jakarta,SurabayaandBali,"Hartonotoldthecourt.
Earlierinthetrial,TempojournalistAbdulManantestifiedthathe
wasassaultedbyoneofWinata'stopsecuritymen,DavidTjioe,
whilepolice,whowerepresentinsidetheTempoofficebuildingon
March8,2003,lookedonbutdidnothing.
TheCentralJakartaDistrictCourtorderedTempomagazinetopay
Rp500millionindamagestoWinataandtorunapublicapology,in
severalmediaoutletsforthreedays,fortheTanahAbangfire
article.Tempo'schiefeditor,BambangHarymurti,andjournalists
AhmadTaufikandTIskandarAliwerechargedwithviolatingArticle
14(1)oftheCriminalCodeforpublishingareportthatcouldprovoke
unrest.
Prosecutorshavesincedemandedthatthecourthanddowntwo
yearprisonsentencestoTaufikandAliforincitingpublicunrest
anddefamingWinata.Averdictisexpectedsoon.
Corruption a deterrent to overseas investment
DiplomaticpressurehasbeenneededinthepasttoforceJakarta
toreversecontroversialdecisions.In2002acourtruledthatthe
IndonesianunitofCanadianlifeinsurerManulifeFinancialCorpwas
bankrupt,eventhoughithadmadeprofits.Therulingcameaftera
disputebetweenManulifeanditsformerIndonesianjointventure
partner.AfterprotestsfromtheCanadiangovernment,aswellas
threatsbytheInternationalMonetaryFund(IMF)towithdraw
supportforIndonesia'sinternationalaidprogram,theSupreme
Courtoverruledthebankruptcydecision.
WhilePolarishasagreedtomake"fullrestitution"of$1million
receivedundertheagreement,BAGhasagreedtoreturnall
softwareprovidedbyPolaris,thesoftwarecompanysaidin
statementissuedtotheBombayStockExchangethisweek.
Thesetwoepisodes,however,areyetanotherreminderofJakarta's
failuretodevelopajudiciarythatcanrestricttheflowofpowerfrom
individualslikeWinata.
Winata'srisetopowertracesbacktotheeraofformerpresident
Suharto,when,likeotherethnicChineseofhisilk,hebuilt
friendshipswithinarmycirclesthatlaterpaidoffbigtime.
Inoneexample,Jakartacityauthoritiesforciblyevictedsquatters
tomakewayforWinata'sproposedmultibilliondollardevelopment
thatlaterhousedBAGandtheJakartaStockExchangecomplex.
Butin1996,histieswiththemilitaryspurredallegationsthat
Winata'spropertyneartheJakartaStockExchangehadbeenused
asastagingareaandsupportbasebyagroupofvigilantesand
formersoldierswhostormedtheJakartaheadquartersofPresident
Megawati'sIndonesianDemocraticPartyofStruggle(PDIP)
killingseveralpeople.
Thetycoon'sassociatesdeniedthecharges,butlastSeptember
Megawati'shusband,TaufikKiemas,wasquotedassaying
Indonesianeededmore"crazymen"likeWinata,willingtoinvestin
thecountry'sremoteprovinces.
BillGuerinhasworkedfor19yearsinIndonesiaasajournalist
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andeditor.Hespecializesinbusiness/economyissuesandpolitical
analysisrelatedtoIndonesia.HehasbeenaJakartacorrespondent
forAsiaTimesOnlinesince2000andhasalsobeenpublishedby
theBBConEastTimor.Hecanbereachedat
softsell@prima.net.id.
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