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Brothers Grim: The Scandal In Brunei


9 August 1998

International Business: BRUNEI


A sibling of the sultan vanishes–and so does $8 billion

It’s a fairy tale from the Asian crisis. Once upon a time, a fabulously wealthy Sultan watched his neighbors fall on hard times. So the rich man gladly offered to help them by dipping into his vast wealth. But when the Sultan reached into his coffers, much of his gold was gone. To his horror, so was his brother, the prince.

That’s the Brothers Grimm version of current events in Brunei, the tiny country nestled on the northern shore of Borneo. Thanks to the oil wealth of his kingdom, the Sultan of Brunei is a multibillionaire. But now one of his brothers, Prince Jefri, is suspected of absconding with billions of dollars from the treasury. The scandal runs the risk of destabilizing the local economy and wreaking more havoc on the already battered economies of Southeast Asia.GUESSWORK. In 1994, Jefri set up Amedeo, a company dedicated to developing Brunei’s infrastructure. Amedeo developed the country with a vengeance, building new hospitals, schools, cellular-phone networks, a polo field, beach bungalows, and more for the country’s 300,000 people. Then, say diplomats, royal accountants found evidence that some Amedeo managers had siphoned off $8 billion. Jefri may also have pledged billions of dollars in bonds held by the Brunei Investment Agency (BIA), which has invested heavily offshore, as collateral to back his personal loans from foreign banks. Senior officials of the government, BIA, and Amedeo decline to comment. But diplomats and bankers say the Sultan now claims it is not Brunei’s responsibility to pay the $10 billion that Amedeo owes to its suppliers and workers. Jefri, meanwhile, has vanished.

No one knows how much damage the Amedeo affair has caused. Brunei does not publish budget figures, so it’s impossible to figure out where the Sultan’s wealth ends and government reserves begin or even if Amedeo has state backing. “There aren’t any fire walls between the personal finances of the royal family, the government, BIA, and Amedeo,” says a diplomat. “The feeling is that it’s all in the same pocket.” Thus diplomats believe that Jefri and Amedeo have blown a hole in the national finances, which are already feeling the effects of a 30% drop in oil prices over the last year. The economy will not grow at all this year, as opposed to 4% in 1997.

That’s bad news for the Sultan’s neighbors. The Sultan plays badminton with Malaysian Prime Minister Mahathir Mohamad, and he had pledged $3 billion to back the recapitalization of Malaysia’s battered financial system. Malaysian officials won’t comment, but diplomats say the aid may not materialize.ROYAL CUTBACKS. The Sultan also had pledged to contribute to two International Monetary Fund bailouts worth $60 billion: He had promised $1.2 billion to Indonesia and $500 million to Thailand. Bank Indonesia officials have recently learned that Brunei has imposed new conditions on the aid: It can only be tapped as “the last line of defense” after Indonesia has depleted the rest of its $43 billion package. “Of course, we’re not happy with these ridiculous terms,” says a senior official of Bank Indonesia.

Singapore could also get drawn into the mess. The Brunei ringgit is pegged to the Singapore dollar, and rumors are mounting that currency raiders want to test the link. Singapore does not want to see the peg severed, since it is a valuable symbol of stability in the battered local markets. If the Brunei ringgit collapses, the effect on Singapore’s markets could be considerable.

To recover from the disaster, the Sultan has had to tighten his belt. He has closed the state-of-the-art Jerudong Amusement Park, which does not charge admission, for two days a week. He has slaughtered 40 polo ponies to cut stable costs. Diplomats say he may raise funds with a king-size garage sale, starting with a Boeing 747 and four Airbus Industrie widebody planes in the royal fleet, and throwing in some 150 Rolls-Royces. Next to go may be his Beverly Hills Hotel, the Dorchester in London, or even a newly acquired residence in Paris where Jefri is rumored to be hiding.

The Sultan also wants Jefri home again. Jefri’s 21-year-old son Hakeem, who was also an Amedeo manager, is being held under house arrest to lure Jefri back to Brunei to face a government inquiry. That probe may shed some light on the whereabouts of Brunei’s billions, but the scandal certainly ends the Brunei fairy tale.By Michael Shari in Bandar Seri Begawan.

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