Analyst tells government to end interbank loans guarantee
JAKARTA (JP): The government has been urged to drop its interbank loans guarantee program to minimize budgetary spending for covering bank defaults, a leading analyst said.
Banking analyst Towil Heryoto said on the weekend that interbank loans transactions carried a high risk which could cost the government dearly.
"Because of the high risk, the government should stop or at least review its interbank loan guarantee program," the former director of state Bank Bapindo told a discussion on the bank restructuring program.
The government launched a blanket guarantee program in January 1998, which guaranteed all obligations of the country's banking sector, including interbank loans, in a bid to restore plunging confidence in the industry.
The country's banking system nearly collapsed last year, particularly when depositors rushed banks following the liquidation of 16 private banks in November 1997.
The cost for the blanket guarantee program is part of the overall bank restructuring cost currently estimated at Rp 550 trillion (US$70 billion).
Towil said that stopping the interbank loan guarantee program would also condition the country's bankers to be extra careful in making interbank loan transactions.
He dismissed suggestions that abandoning the guarantee program would sharply deflate the size of the interbank loan market.
"We have had quite an active interbank loan market for a long time without any kind of government guarantee in the past," he said.
Towil said that the initial March 1998 joint decree between the Indonesian Bank Restructuring Agency (IBRA) and the central bank actually reflected the reluctance of banking authorities to guarantee the interbank loans by imposing tough requirements.
"But it's unclear why the decree was softened, and which ended up with the Bank Bali scandal occurring," he said.
He was referring to the transfer of Rp 546 billion (about US$80 million at current rate) from Bank Bali to private entity PT Era Giat Prima (EGP) as a commission fee to help the bank recoup its interbank loans on closed-down banks which were guaranteed by IBRA.
The joint decree was revised in May 1998 to allow more banks to enjoy the guarantee facility. Under the previous decree, the government would only guarantee interbank loans reported by the bank debtor by the deadline. But not many bank debtors reported their interbank debt by the deadline. The revised May decree allows the bank creditor to make the reporting.
Towil said that the Bank Bali scandal should serve as a valuable lesson to banking authorities that the guarantee program was prone to abuse by the bankers and authorities, including "marking up" the value of loans to be guaranteed.
The government has been under fire over its blanket guarantee program following the emergence of the Bank Bali scandal, which may implement the inner circle of President B.J. Habibie.
The International Monetary Fund (IMF) has assigned Australia- based PricewaterhouseCoopers to audit the Bank Bali transaction, including examining the blanket guarantee program to prevent a similar mistake from reoccurring.
The Bank Bali scandal has been widely publicized, particularly due to the alleged involvement of Habibie's close aides.
Separately, former Bank Indonesia director I Nyoman Moena said that the interbank loan guarantee program could not be taken away from the overall blanket guarantee program because it was also depositors' money which was being put on the call money market.
He said that the blanket guarantee program could only be stopped once the banking sector had become healthy and confidence had fully recovered.
"Once the industry becomes healthy, the blanket guarantee program can be replaced with an insurance deposit system which is more commercial in nature," he said. (rei)