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Indonesia detains 5 suspects as insurer probe widens

Jakarta

INDONESIAN prosecutors have detained five suspects, including a businessman who lost a case to Goldman Sachs Group Inc in a share ownership dispute, as the authorities widen a probe into investment irregularities at the nation's oldest insurer, now on the brink of collapse.

Benny Tjokrosaputro, president director of Hanson International, Heru Hidayat, president commissioner of Trada Alam Minera, and Hendrisman Rahim, former president director of Asuransi Jiwasraya were among those arrested on Tuesday, said Hari Setiyono, a spokesman for the Attorney-General S T Burhanuddin. The suspects will remain in custody for 20 days for interrogation, he said.

Prosecutors are investigating financial irregularities at Jiwasraya, which is facing a US$2 billion hole on its books, stemming from what the state insurer has described as product mispricing, reckless investment activities, aggressive window dressing and liquidity pressure. The company is now betting on a government bailout as mounting leave it with a lack of cash to pay policyholders.

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The scandal there has been unfolding in the past three years, after a 2016 audit revealed violations of investment guidelines. Another audit last year found that the insurer had negative equity of 27.2 trillion rupiah (US$2 billion), sparking calls for a lifeline. The probe also uncovered alleged irregularities and fraud in the management of its savings and investment plans, which had offered guaranteed returns of as high as 13 per cent.

State-Owned Enterprises Minister Erick Thohir lauded the auditor and the Attorney-General's office for the quick investigation and arrests in a statement: "Stern and indiscriminate actions are needed for justice and restoring the public trust in the corporation."

Jiwasraya's stocks and mutual fund investments in violation of guidelines caused a potential state loss of 13.7 trillion rupiah until August, said the attorney's office. The insurer had also invested heavily in assets with high risks, such as medium-term notes issued by Hanson International.

A spokesman for Hanson confirmed Tjokrosaputro's detention but deferred other questions to his legal team. Calls to Trada Alam's office were unanswered, and the lawyers for Rahim and Jiwasraya's former finance and investment director Harry Prasetyo, who was also arrested, could not immediately be reached.

Goldman Sachs last year won an appeal against a lower court ruling in favour of Hanson's Tjokrosaputro in a share-dispute case. Hanson International shares slumped 58 per cent last year, and the company was probed by the market regulator for violating fund raising rules.

The crisis at Jiwasraya affects 17,000 buyers of investment products and seven million clients, and may pose systemic risks, Indonesia's audit board said last week.

President Joko Widodo has ordered the finance and state-owned enterprise ministers to take steps to rescue customers' funds, his spokesman Fadjroel Rachman said Wednesday.

Jessica Pratiwi, an analyst at Fitch Ratings, said in a statement: "The troubles at Jiwasraya have reduced confidence in Indonesia's overall financial system", though other rated insurers are unlikely to face similar issues. "Life insurers that underwrite a high proportion of products with high guaranteed interest rates" may have difficulties fulfilling their obligations.

The mess at Jiwasraya has spurred the government to consider setting up an agency to shield policyholders of troubled insurance companies. The government has also put on a watch list Asabri, which manages the pension and insurance of millions of police, military and defence personnel, after the value of its stock investments eroded. BLOOMBERG