BI loan probe may boost confidence: Experts
The Jakarta Post, Jakarta
A new investigation into the alleged misuse of Rp 138.4 trillion (about US$13 billion) of Bank Indonesia (BI) liquidity support loans, could be a good opportunity to bolster public confidence in the government, but a failure to deliver results could prove costly to the country's frail economy, experts said.
Economic and banking analyst Ryan Kiryanto at Bank Negara Indonesia said a new investigation would put Indonesia's legal system to the test.
"It (the investigation) will show whether this government has the courage to bring about legal reforms," he told The Jakarta Post.
Last week, a BI official said the International Monetary Fund (IMF) had asked the government to begin a new probe into the mishandled liquidity support funds.
Both parties agreed to appoint an independent consultant for the case, and to add it to the draft of the fourth Letter of Intent (LoI), according to the official.
This shows the government is serious about corruption, which has been a major turn off to foreign investors, Ryan said.
Two separate investigations have gone into the case, without leading to any prosecutions or the return of the funds.
At the peak of the 1997 financial crisis, BI channeled a massive Rp 144.5 trillion into liquidity support for local banks hit by massive cash problems.
A report by the Supreme Audit Agency (BPK) later revealed that almost all of the funds, or Rp 138.4 trillion were lost.
BPK blamed Bank Indonesia for neglecting its own rules that led to the vast abuse of the state funds.
Most of the loans were channeled to the cash-strapped banks before BI had obtained its independent status in May 1999 through the Central Bank Law.
BI actually extended the loans while it had been under the IMF's direct supervision.
Given the magnitude of this case, Ryan said, the government could expect strong resistance from implicated bank owners.
According to the BPK report, around Rp 100 trillion went into banks owned by the family and friends of former president Soeharto.
"There will be pressure (against the government)," Ryan said.
He also warned that failure to show progress would again accentuate the government's inability to tackle corruption.
The LoI's high exposure to the foreign investment community also meant the damage to investor confidence could be devastating if the government is unable to carry out its pledge.
The IMF may suspend its loan program if the government misses its LoI targets. For that same reason, the IMF withheld last year's loan tranche worth US$400 million.
Coming at a higher cost is the subsequent absence of foreign investment -- capital needed to spur economic growth.
Regional banking analyst Lin Che Wei at SG Securities said solving the loan abuse case within a short time could be difficult.
"Sure we all want this case to be solved, but I am concerned about the practicalities of the investigation," he said.
Any findings will inevitably affect debt deals with owners of banks that had received liquidity loans.
To repay the loans, bank owners have surrendered their assets to the Indonesian Bank Restructuring Agency (IBRA) under a deal known as the Master of Settlement and Acquisition Agreement (MSAA). These assets are now for sale.
Che Wei said meddling with the MSAA would interfere with IBRA's asset sales program, putting at risk its revenue target, which finances the state budget deficit.
But an advisor to the Finance Ministry, Anggito Abimanyu said the job of the independent consultant was to calculate how much the government and the central bank must each pay for the apparently abused funds.
BI said it could shoulder only Rp 24 trillion of the Rp 138.4 trillion that went missing under its charge.