Citibank Indonesia - Citibank Indonesia In November 1983...

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Citibank Indonesia In November 1983, Mehli Mistri, Citibank’s country manager for Indonesia, was faced with a difficult situation. He had just received a memorandum from his immediate superior, David Gibson, the division head for Southeast Asia, informing him that during their just- completed review of the operating budgets, Citibank managers at corporate had raised the SE-Asia division’s 1984 after-tax profit goal by $4 million. Mr. Gibson, in turn, had decided that Indonesia’s share of this increased goal should be between $500,000 and $1,000,000. Mr. Mistri was concerned because he knew that the budget he had submitted was already very aggressive; it included some growth in revenues and only a slight drop in profits, even though the short-term outlook for the Indonesian economy, which was highly dependent on oil revenues, was pessimistic. Mr. Mistri knew that to have any realistic expectation of producing profits for 1984 higher than those already included in the budget, he would probably have to take one or more actions that he had wanted to avoid. One possibility was to eliminate (or reduce) Citibank’s participation in loans to prime government or private enterprises, as these loans provided much lower returns than was earned on the rest of the portfolio. However, Citibank was failing to participate in these loans could have significant costs in terms of relations with the government and prime customers in Indonesia and elsewhere. The other possibility was to increase the total amount of money lent in Indonesia, with all of the increase going to commercial enterprises. But with the deteriorating conditions in the Indonesian economy, Mr. Mistri knew that it was probably not a good time for Citibank to increase its exposure. Also, the government did not want significant increases in such offshore loans to the private sector at this time because of their adverse impact on the country’s balance of payments and services account. So, Mr. Mistri was contemplating what he should do at an upcoming meeting with Mr. Gibson. Should he agree to take one or both of the actions described earlier in order to increase 1984 profits? Should he accept the profit increase and hope that the economy turned around and/or that he was able to develop some new, hitherto unidentified sources of income? Or should he resist including any of the division’s required profit increase in his budget? CITIBANK Citibank, the principal operating subsidiary of Citicorp, was one of the leading financial institutions in the world. The bank was founded in 1812 as a small commercial bank in New York City, and over the years it had grown to a large, global financial services intermediary. In 1983, the bank had revenues of almost $5.9 billion and employed over 63,000 people in almost 2,600 locations in 95 countries.
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