Thu, 26 Oct 2000

Bank Istimarat, Bank Pelita seek out-of-court deal

JAKARTA (JP): The Central Jakarta Commercial Court has asked the Indonesian Bank Restructuring Agency (IBRA) and owners of the now defunct Bank Istimarat and Bank Pelita to seek an out-of- court settlement over the agency's charge that the two banks had misused the government's emergency loan worth over Rp 3 trillion (US$340 million).

In the first hearing of the case on Tuesday, chief judge Subardi told IBRA and the owners of the two closed banks to seek a "win-win" solution rather than proceed with the legal battle.

Warih Sadono and Slamet Riyadi, IBRA's legal advisors said they agreed with the court's proposal as long as the deal satisfies their client.

"We will see what's best for the two sides (IBRA and Bank Istimarat) but what is clear is that the bank must pay," Warih told reporters following the hearing.

According to IBRA, Bank Istimarat had misused the government's emergency loan, or more popularly called liquidity support, worth Rp 596 billion (about US$79.5 million).

IBRA alleged Bank Pelita of misusing some Rp 2.6 trillion of the liquidity support injected into the bank to keep it afloat during the monetary crisis.

The government, through Bank Indonesia (BI), channeled some Rp 144.5 trillion in emergency liquidity support to 48 banks between 1998 and 1999 in a bid to safe them from collapsing amid massive bank runs.

The public's confidence in the banking industry dropped to its lowest point following the government's decision, during the economic crisis in late 1997, to close down 16 private banks.

Some of the banks which received BI's liquidity support had to be closed down, while others were nationalized and placed under IBRA.

According to the findings of the Supreme Audit Agency (BPK), around Rp 138.4 trillion (95 percent) of the emergency loans were either misused or channeled in violation of banking regulations.

Banks were supposed to use the liquidity support to settle their obligation. But BPK said the banks used the emergency loans for other purposes, such as currency speculation, lending to affiliated business groups and repaying subordinated loans.

The Rp 144.5 trillion in liquidity support has now become the government's debt to the central bank, for which the government planned to issue bonds to repay the debt.

Bank Pelita and Bank Istimarat were among the banks the government suspected of having misused BI's liquidity funds.

IBRA took the two banks' board of directors and owners business tycoon Hashim Djojohadikusumo and his father, economist Sumitro Djojohadikusumo to court for their failure to repay the liquidity support given to the banks.

The agency demanded Hashim and his father Sumitro be held in custody if they failed to pay their debts.

Should the court grant IBRA's request, Hashim and his father might be among the first to fall victim to the Supreme Court's regulation No.1/2000.

The regulation stipulates that uncooperative debtors with debts of at least Rp 1 billion, could face imprisonment of between six months and four years.

However, the two banks' legal advisor Hotman Paris Hutapea said IBRA had addressed the wrong people as Hashim and Sumitro were no longer owners of the two banks.

He further said that an out-of-court settlement depended on IBRA appraising the assets it took over from the two banks.

IBRA, he said, took over banks' assets as part of recovering their debts to the government.

According to him, without an asset appraisal, IBRA and the two banks would remain in disagreement over how much the banks had to pay the agency to cover their debts.

The next hearing between IBRA and the two banks will be held in two weeks.(bkm)