BI boosts financial aid to banks amid Y2K fears

JAKARTA (JP): Bank Indonesia is providing an extra financial assistance to banks facing liquidity problems due to millennium bug-related deposit runs, according to the central bank's senior executive.

BI's senior deputy governor Anwar Nasution said on Wednesday that Bank Indonesia would allow banks to sell back up to 100 percent of their Bank Indonesia certificates (short-term promissory notes or SBIs) to the central bank if they faced liquidity problems.

He also said that recapitalized banks could also borrow money from the central bank using government bonds injected into the banks as collateral.

"(The extra help) is only effective from December 22 until January 17, 2000," Anwar told reporters at a press conference on the readiness of the country's financial sector in dealing with the year 2000 (Y2K) bug.

Bank Indonesia's technology director, Inding Fajar, said that banks normally could only sell back 25 percent of the SBI notes they held before maturity.

After a two-year banking crisis, filled with bank runs and capital destruction, Indonesian banks now enjoy ample liquidity, which is mostly invested in SBI notes as they remain cautious in lending to the still troubled commercial sector.

The government has also recapitalized a dozen of the country's major private and nationalized banks. The government injected bonds to finance the recapitalization costs.

Inding said that only a maximum 10 percent of the government's racapitalization bonds could be put as collateral in the central bank.

He said that the central bank normally would not accept government bonds as collateral.

Bank Indonesia's deputy governor, Aulia Pohan, added that for banks which don't have SBI notes or were not recapitalized, Bank Indonesia would debit government deposits at the central bank for every liquidity support lent to the banks.

The Y2K bug is a problem that is predicted to strike many computer systems in the year 2000. Computer chips that have not been updated could mistake '00' as 1900. The error could create various problems including billing errors and missing data in bank accounts.

Anwar also said that Bank Indonesia would also ease certain banking requirements.

He said that based on request, banks were allowed to include cash deposited at the banks as a component in the calculation of the rupiah minimum reserves requirement.

He added that the central bank would reduce the penalty if the rupiah reserves requirement fell below the minimum level.

He said that the penalty would only be 100 basis point above the overnight Jakarta interbank offering rate (Jibor) from the usual penalty of 125 percent of overnight Jibor.

Anwar said that the country's banking system was already Y2K compliant including a four-fold backup plan and contingency measures.

He said that the Y2K threat to the domestic banking industry was not as serious as in other developed nations because only about 20 of the country's more than 100 banks used advanced technology.

"Banking technology in Indonesia is not as sophisticated as in developed nations like in Singapore," he said.

But nevertheless, Bank Indonesia has been making serious preparations to prevent computer glitches in the country's banking system.

He said that Bank Indonesia and commercial banks would remain open on Dec. 31 because of the traditional year end book close on that day. (rei)