Justice, not burden sharing<\/p>\n
The Rp 144.5 trillion (US$14.5 billion) in emergency liquidity
\ncredits extended by Bank Indonesia (BI) to bail out the
\ndistressed banking industry in 1997 and 1998 has led to one
\ndebacle after another for the central bank.<\/p>\n
Instead of earning high praise for \"successfully executing\"
\nits lender-of-last-resort function, the massive liquidity support
\nprogram almost drove it into bankruptcy in 2000 and three of its
\nformer directors were put in detention by the Attorney General's
\nOffice. BI's board of governors were so demoralized by the fiasco
\nthat five deputy governors tendered their resignations in
\nNovember 2000. To add insult to injury, BI's governor was
\nlanguishing under house arrest on charges in a different
\ncorruption case.<\/p>\n
Even now, more than four years after the huge liquidity
\ninjection, the central bank is still haunted by what it has
\nalways claimed was a safety measure to deal with the banking
\ncrisis.<\/p>\n
A spokesman for Bank Indonesia said on Monday that an
\nindependent team of two Indonesian and two foreign banking
\nexperts were now considering how much the central bank and the
\ngovernment should each share the burden to recover the Rp 138.5
\ntrillion of the total liquidity credits that were lost.<\/p>\n
The dispute over the massive liquidity support arose after an
\nindependent audit by the Supreme Audit Agency (BPK) in 1999 found
\nthat Rp 138.5 trillion of the loans had not been adequately
\nsecured by collateral, as required by law, and quite a portion of
\nthese funds, intended to be used to reimburse depositors during
\nthe massive bank runs in 1998, had been misused by the recipient
\nbanks for currency speculation or lending to their affiliate
\nbusinesses.<\/p>\n
The auditor's findings prompted the government in 2000 to
\ndisclaim the allegedly misappropriated loans as its debts,
\nthreatening to withdraw the bonds equivalent to that amount it
\nhad issued to the central bank.<\/p>\n
Naturally, Bank Indonesia flatly denied any wrongdoing,
\narguing that as part of the Cabinet under the authoritarian rule
\nof then president Soeharto it ought to obey the president's
\ninstruction not to close banks, most notably those owned by
\nSoeharto's cronies, even though their account balance with the
\ncentral bank had been negative. The central bank, which became a
\npolitically independent institution in May, 1999, even threatened
\nto take back all the bank loans and assets (collateral) from
\nclosed and nationalized banks it had transferred to the
\ngovernment through the Indonesian Bank Restructuring Agency
\n(IBRA).<\/p>\n
The central bank was prevented from bankruptcy in late 2000
\nonly by a provisional agreement that required the central bank to
\nbear only Rp 24.5 trillion of the disputed losses. But this
\nagreement did not hold due to lack of support from the House of
\nRepresentatives.<\/p>\n
It is beyond doubt that the dispute should be resolved
\nimmediately, otherwise Bank Indonesia will never get a clean bill
\nof health from its auditors, BPK, and the central bank may
\neventually be disqualified by the Basel, Switzerland-based Bank
\nfor International Settlement (BIS) from its membership with
\ndevastating implications for Indonesia as a whole. Such
\ndisqualification will destroy Bank Indonesia's credit rating and
\nprompt foreign banks to refuse its guarantee of letters of credit
\nopened by Indonesian banks.<\/p>\n
But in so far as the taxpaying public is concerned, they will
\nalways end up as the biggest losers no matter how the burden
\nsharing is formulated because it will simply transfer the losses
\nfrom one account to another account of the state. After all,
\ndespite its independent status, Bank Indonesia is nevertheless
\nowned by the government. Any losses booked to the central bank
\nwill simply reduce the amount of profits Bank Indonesia will be
\nable to remit to the government in the future.<\/p>\n
The core issue here is justice, not burden sharing. Despite
\nthe auditor's findings, none of the central bank executives or
\ncommercial bank executives allegedly involved in the misuse of
\nthe loans have been brought to justice. True, three former
\ndirectors of Bank Indonesia, who were initially interrogated in
\nlate 1998 but were later released, have again been put in
\ndetention by the attorney general. The central bank governor,
\nSjahril Sabirin, was convicted by a Jakarta court last month but
\nin relation to another corruption case totally unrelated to the
\nliquidity credit scam, but he still essentially free, pending
\nappeal.<\/p>\n
The former president of the now defunct Bank BHS, Hendra
\nRahardja, was sentenced by the Central Jakarta District Court to
\nlife in prison and two other executives of the bank each to 20
\nyears in jail late last month after being found guilty of
\nmisusing the liquidity credits.<\/p>\n
But this legal process was rendered rather meaningless as they
\nwere tried in absentia and the trial process did not cover the
\nwider issue of the auditor's findings.<\/p>\n
It is therefore most imperative that the attorney general
\nspeed up criminal investigations of Bank Indonesia officials and
\ncommercial bank executives implicated in the huge loan scandal.
\nThe officials of the central bank, as a regulatory agency, cannot
\nsimply disclaim responsibility and hide behind instructions from
\nthe president.<\/p>",
"url": "https:\/\/jawawa.id\/newsitem\/justice-not-burden-sharing-1447893297",
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"sponsor": "Okusi Associates",
"sponsor_url": "https:\/\/okusiassociates.com"
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