BI loan probe may boost confidence: Experts<\/p>\n
The Jakarta Post, Jakarta<\/p>\n
A new investigation into the alleged misuse of Rp 138.4
\ntrillion (about US$13 billion) of Bank Indonesia (BI) liquidity
\nsupport loans, could be a good opportunity to bolster public
\nconfidence in the government, but a failure to deliver results
\ncould prove costly to the country's frail economy, experts said.<\/p>\n
Economic and banking analyst Ryan Kiryanto at Bank Negara
\nIndonesia said a new investigation would put Indonesia's legal
\nsystem to the test.<\/p>\n
\"It (the investigation) will show whether this government has
\nthe courage to bring about legal reforms,\" he told The Jakarta
\nPost.<\/p>\n
Last week, a BI official said the International Monetary Fund
\n(IMF) had asked the government to begin a new probe into the
\nmishandled liquidity support funds.<\/p>\n
Both parties agreed to appoint an independent consultant for
\nthe case, and to add it to the draft of the fourth Letter of
\nIntent (LoI), according to the official.<\/p>\n
This shows the government is serious about corruption, which
\nhas been a major turn off to foreign investors, Ryan said.<\/p>\n
Two separate investigations have gone into the case, without
\nleading to any prosecutions or the return of the funds.<\/p>\n
At the peak of the 1997 financial crisis, BI channeled a
\nmassive Rp 144.5 trillion into liquidity support for local banks
\nhit by massive cash problems.<\/p>\n
A report by the Supreme Audit Agency (BPK) later revealed that
\nalmost all of the funds, or Rp 138.4 trillion were lost.<\/p>\n
BPK blamed Bank Indonesia for neglecting its own rules that
\nled to the vast abuse of the state funds.<\/p>\n
Most of the loans were channeled to the cash-strapped banks
\nbefore BI had obtained its independent status in May 1999 through
\nthe Central Bank Law.<\/p>\n
BI actually extended the loans while it had been under the
\nIMF's direct supervision.<\/p>\n
Given the magnitude of this case, Ryan said, the government
\ncould expect strong resistance from implicated bank owners.<\/p>\n
According to the BPK report, around Rp 100 trillion went into
\nbanks owned by the family and friends of former president
\nSoeharto.<\/p>\n
\"There will be pressure (against the government),\" Ryan said.<\/p>\n
He also warned that failure to show progress would again
\naccentuate the government's inability to tackle corruption.<\/p>\n
The LoI's high exposure to the foreign investment community
\nalso meant the damage to investor confidence could be devastating
\nif the government is unable to carry out its pledge.<\/p>\n
The IMF may suspend its loan program if the government misses
\nits LoI targets. For that same reason, the IMF withheld last
\nyear's loan tranche worth US$400 million.<\/p>\n
Coming at a higher cost is the subsequent absence of foreign
\ninvestment -- capital needed to spur economic growth.<\/p>\n
Regional banking analyst Lin Che Wei at SG Securities said
\nsolving the loan abuse case within a short time could be
\ndifficult.<\/p>\n
\"Sure we all want this case to be solved, but I am concerned
\nabout the practicalities of the investigation,\" he said.<\/p>\n
Any findings will inevitably affect debt deals with owners of
\nbanks that had received liquidity loans.<\/p>\n
To repay the loans, bank owners have surrendered their assets
\nto the Indonesian Bank Restructuring Agency (IBRA) under a deal
\nknown as the Master of Settlement and Acquisition Agreement
\n(MSAA). These assets are now for sale.<\/p>\n
Che Wei said meddling with the MSAA would interfere with
\nIBRA's asset sales program, putting at risk its revenue target,
\nwhich finances the state budget deficit.<\/p>\n
But an advisor to the Finance Ministry, Anggito Abimanyu said
\nthe job of the independent consultant was to calculate how much
\nthe government and the central bank must each pay for the
\napparently abused funds.<\/p>\n
BI said it could shoulder only Rp 24 trillion of the Rp 138.4
\ntrillion that went missing under its charge.<\/p>",
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