The Indonesian business community is waiting for a Supreme Court decision on Manulife, the Jakarta subsidiary of a Canadian company that was recently declared bankrupt. The company's offices remain closed while its case is appealed. To many, the two year Manulife saga serves as an example of the hazards of doing business in Indonesia.
To the surprise of many in Indonesia's business community, the country's commercial court declared Manulife Indonesia bankrupt earlier this month. The ruling came even though the insurance company posted a net profit of nearly $9 million last year and manages $360 million in assets.
"[At] the end of last year we were voted the top insurance company in Indonesia, and now we're bankrupt. It's quite farcical," said Philip Hampden-Smith, head of Manulife-Indonesia.
Manulife Indonesia is a subsidiary of Canada's Manulife financial services group. It was founded in 1987 as a joint venture with Indonesian company Dharmala Sakti Sejahtera (DSS).
The company has 4,000 Indonesian staff, serving 400,000 customers. That makes it the largest foreign joint-venture insurance company and the fourth largest life insurer in Indonesia.
A few years ago, DSS proved unable to weather the turbulence of Asia's financial crisis and went bankrupt.
In a public auction in October 2000, Manulife-Indonesia bought DSS's 40 percent of the joint venture's shares. The move would have given a much-needed $20 million to the Indonesian government, which was one of the DSS creditors.
But that is where the trouble began.
Since then, Manulife-Indonesia has suffered from seemingly endless harassment. Police detained two senior employees without charges - one of them for nearly three weeks. Threats have been made against the safety of Manulife's Mr. Hampden-Smith. Then, finally, it was taken to the Commercial Court.
DSS is owned by the Dharmala Group, a massive Indonesian conglomerate run by the Gondokusumo family.
Dharmala Group claimed Manulife owed it a dividend from 1999. Manulife Indonesia's board of directors voted against paying a dividend that year. But Dharmala's lawyers persuaded the court to declare Manulife bankrupt, under an Indonesian law saying a company is bankrupt if it has unpaid debts.
Analysts say it is likely that some one illegally influenced the court's decision. Indonesia's courts are considered by many in the country to be weak and corrupt, "mostly because the low capability of our judge[s]," said Raden Pardede, a financial analyst with the Danareska Research Institute in Jakarta. "And second, because of cronyism in the Commercial Court itself. Not only cronyism, but corruption. Our court is corrupt and even our lawyers in Indonesia do their business using money."
Manulife is fighting back. It has appealed the bankruptcy decision to Indonesia's Supreme Court.
And recently, Manulife released a secretly-filmed video it says shows an associate of DSS trying to extort $400,000 from the insurance company.
"The bottom line is we were being expected to pay moneys to a third party who is suspected was not legal," said Manulife chief, Philip Hampden-Smith, "moneys that didn't belong to us, moneys that belonged to somebody else. And those somebody else's are legal creditors, both foreign and local, and the Indonesian government."
The government of Canada has denied media reports that it intends to impose trade sanctions on Indonesia, if the Manulife situation is not resolved.
But Canada's Secretary of State for Asia-Pacific Affairs, David Kilgour, points out that the Manulife situation may drive away foreign investors. "We're talking about the sanctions by the market, not sanctions by the government of Canada," said Mr. Kilgour. "That's the thing that Indonesians know very well that they have to be very careful about. And I think the government as of this morning is understanding that now too."
The Indonesian government says it too wants the Manulife situation to come to an end but it does not want to intervene in the legal process.
But financial analyst Raden Pardede says the government can get involved without interfering in the legal system, to boost investor confidence in Indonesia.
"Of course, the executive can lobby to the Supreme Court about this issue. We just hope the Supreme Court can make a good decision. If not, I think this is a big blow for reform in Indonesia, said Mr. Pardede. After nearly two years, analysts say no one has gained anything from Manulife's legal problems - including the Dharmala Group. Even the $20 million Manulife paid to buy out DSS has been frozen, pending the outcome of the legal investigations.