Analyst tells government to end interbank loans guarantee
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)