BI executive stands by Sjahril

BI executive stands by Sjahril

JAKARTA (JP): Central bank senior deputy governor Anwar
Nasution said on Thursday it would be completely unfair to
suspend Bank Indonesia's governor Sjahril Sabirin from duty for
alleged irregularities in the extension of emergency liquidity
credits to commercial banks.

Anwar told reporters that the alleged abuse of the liquidity
support from the central bank took place before Sjahril took over
from the previous governor, Soedradjad Djiwandono, in February,
1998.

"I fully support the investigative audit on Bank Indonesia
currently conducted by the Supreme Audit Agency. But the fact is,
most of us (board of governors) were only appointed after most of
the liquidity credits had been extended," Anwar said.

Anwar, who will take over the governorship if Sjahril is
unable to perform his duty, was commenting on rumors that
President Abdurrahman Wahid is considering recommending to the
House of Representatives that Sjahril be replaced.

The issue first surfaced early this year, after a general
audit on the central bank by the Supreme Audit Agency concluded
that Bank Indonesia was almost insolvent due to huge losses
incurred by the abuse of its liquidity support to ailing banks
between late 1997 and early 1998.

The audit alleged that Rp 80 trillion (US$11 billion) of the
Rp 164 trillion in emergency liquidity support extended by the
central bank was not according to procedures.

Most of the emergency loans were extended between December,
1997, and early 1998, amid massive runs on many banks, as the
public lost confidence in the banking industry after the closure
of 16 banks in mid-November, 1997.

The report also accused the governor and deputy governors of
being lax in bank supervision and accounting standards. However,
both men flatly denied any wrongdoing in the extension of the
liquidity support and asserted that the central bank remained
highly solvent.

Shocked by the revelation, the House made its own
investigation into the case and recommended an investigative
audit on the central bank, which is currently underway.

However, the rumors of the imminent replacement of Sjahril
became stronger early this week after Minister of State
Enterprises and Investment Laksamana Sukardi stated his
willingness to replace Sjahril.

Laksamana, formerly an executive director of Lippo Bank,
confirmed on Thursday that the President was considering
recommending him to replace Sjahril.

Speaking to reporters after a hearing with the House,
Laksamana said he was ready to hold the position (of central bank
governor) because he used to be a banker himself.

The new Central Bank Law, enacted in May, 1999, guarantees
Bank Indonesia's independence from executive control. The law
stipulates that only the House can remove a central bank governor
and only when the official is found to have violated Indonesian
law.

Anwar said the policy on emergency liquidity credit was made
by the government when the central bank was still led by
Soedradjad.

"I hereby call upon those responsible for setting the policy
to come forward, be magnanimous and make the plunge and account
for that policy," Anwar added.

Anwar said he himself was still flabbergasted by the question
as to why the central bank had extended liquidity support to
outrightly insolvent banks.

Steve Hanke, who acted as a special adviser to former
president Soeharto in early 1998 when Indonesia was considering
adopting a fixed exchange rate system under a currency board,
also asserted in an article in the Asian Wall Street Journal on
Wednesday that the central bank had massively abused its lender-
of-last resort responsibility.

Hanke, a professor at Johns Hopkins University in Baltimore,
U.S., after reviewing Bank Indonesia's books at the request of
Soeharto in February, 1998, concluded that the central bank had
extended the equivalent of $37 billion in liquidity support
between December, 1997, and the end of January, 1998.

Hanke added that Soedradjad was abruptly fired by Soeharto in
mid-February, 1998, because of his disclosure on the massive
abuse of liquidity credits, not due to the governor's opposition
to the planned currency board, as widely reported at the time.