Liquidity credits revisited<\/p>\n
The government announced last week plans to issue Rp 144.5
\ntrillion (US$17 billion) worth of 30-year bonds to reimburse the
\nemergency liquidity support Bank Indonesia extended in 1997 and
\n1998 and to bail out the distressed banking industry.<\/p>\n
The bonds, with an annual interest of 0.1 percent would
\nreplace the debt instruments worth the same amount, but with much
\nhigher coupon rates than the government issued in 1998 and 1999
\nto the central bank.<\/p>\n
This deal would resolve once and for all the four-year dispute
\nover the massive liquidity credits that stemmed from the
\nindependent audit of the Supreme Audit Agency in 1999. The Audit
\nfound that Rp 138.5 trillion of the loans had not been adequately
\nsecured with collateral and quite a portion of these funds,
\nsupposed to reimburse depositors during the massive bank runs,
\nhad been misused by the recipient banks -- in currency
\nspeculation or lending to their affiliated businesses.<\/p>\n
The audit's findings prompted the government to disclaim the
\nallegations and threaten to withdraw bonds, equivalent to the
\namount issued to the central bank.<\/p>\n
Certainly, 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, notably those owned by Soeharto's
\ncronies.<\/p>\n
The central bank, which became a politically independent
\ninstitution in May 1999, even threatened in 2001 to take back all
\nbank loans and assets (collaterals) from closed and nationalized
\nbanks that it had transferred to the government through the
\nIndonesian Bank Restructuring Agency (IBRA).<\/p>\n
The final resolution would theoretically reduce the interest
\nburden of government debts to the central bank from almost Rp 5
\ntrillion annually to a mere Rp 144.5 billion, and would
\nreschedule the bond maturity to 30 years. The previous bonds
\nbegin maturing this year.<\/p>\n
The caveat, however, is that the final agreement is tied to
\nthe condition that the government pays the central bank any
\nshortfall, if Bank Indonesia's capital adequacy ratio (CAR) falls
\nbelow 3 percent of its total monetary liabilities. But if the
\ncentral bank's CAR exceeds 10 percent, it is obliged to transfer
\nthe surplus to the government as payments to retire the bonds.<\/p>\n
This condition may require amendments to the 1999 central bank
\nact which stipulates that the central bank's capital shall amount
\nminimally to Rp 2 trillion and that the government is obliged to
\npay the central bank any shortfall (if its capital falls below
\nthat amount). The law doesn't specifically mention any CAR ratio.<\/p>\n
The final agreement, which was based on a political consensus
\nwith the House of Representatives early last month, reflected the
\ngovernment's endorsement of the validity of the credits, with
\ndisregard to the Supreme Audit Agency's findings.<\/p>\n
Beyond any doubt, the protracted dispute should be resolved.
\nWaiting for further verification of the bad loans and distressed
\nassets transferred by Bank Indonesia to IBRA would be rather an
\nimpossible mission, because many of the assets have been sold.<\/p>\n
The resolution of the dispute is vital, to remove once and for
\nall the uncertainty about the government's fiscal balance sheet
\nand to enable the central bank to obtain unqualified opinions
\nfrom the Supreme Audit Agency for its annual financial report.<\/p>\n
However, the agreement should be limited to the burden sharing
\n(financial relations) between the government and Bank Indonesia.
\nBecause, whatever the formula of the burden sharing might be, the
\ntaxpayers will always end up as the biggest losers. Losses will
\nsimply be transferred from one account to another. After all,
\ndespite its independent status, Bank Indonesia is still owned by
\nthe government. Any losses booked to the central bank will simply
\nreduce the amount of profits Bank Indonesia will be able to remit
\nto the government in the future.<\/p>\n
That means that the legal aspects of the auditors' findings
\nabout alleged misappropriations and misuse of the liquidity
\ncredits should be investigated. The core issue here is justice.<\/p>\n
The Supreme Audit Agency said it had submitted to the Attorney
\nGeneral's Office 50 Bank Indonesian officials implicated in
\ncredit misappropriation, but only three of them have so far been
\nbrought to court. Several former bank directors and owners found
\nresponsible for misusing credits have also been prosecuted.<\/p>\n
But the public believes there are still many more senior
\nofficials and former bankers implicated in the loan scam that
\nremain untouched by the justice system. It is these culprits that
\nshould be hunted down and brought to justice.<\/p>",
"url": "https:\/\/jawawa.id\/newsitem\/liquidity-credits-revisited-1447893297",
"image": ""
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"sponsor": "Okusi Associates",
"sponsor_url": "https:\/\/okusiassociates.com"
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