BPK refuses to join team to resolve loans

JAKARTA (JP): Head of the Supreme Audit Agency (BPK) Satrio B. Judono said Friday that the agency would not participate in a joint team to be formed by the Ministry of Finance and Bank Indonesia to seek a "political resolution" over the controversial government bank liquidity support facility.

"We won't join the team. We prefer to be in the middle," he told reporters.

The House of Representatives commission IX on state budget and banking in a recent meeting with the Ministry of Finance and Bank Indonesia has recommended the forming of the joint team.

The recommendation was made after Bank Indonesia and the Ministry of Finance continued to be embroiled in a dispute over who should be held responsible for the massive misuse of the liquidity support loan.

Both government and central bank officials admitted that the case had taken a great deal of their energy and time.

In a limited cabinet meeting on Sept. 3, 1997, two months after the financial crisis hit the country, the government decided to inject liquidity support loans via Bank Indonesia to banks suffering from massive runs.

The measure was needed to prevent the country's banking system from systematically collapsing.

According to a recent BPK investigative audit report, the government had injected around Rp 144.5 trillion in emergency loans to troubled banks, but some Rp 138 trillion of the loans had been abused.

The loan was only supposed to be injected to banks suffering from massive runs and to be used to repay depositors money, but BPK said that some banks had instead used the loan for currency speculation and to finance their affiliated businesses.

BPK said that the abuse occurred partly due to the weak supervision of the central bank.

The government has until now declined to be fully responsible for the Rp 144.5 trillion loan because part of the loan was channeled due to the "mistakes" of Bank Indonesia.

The Ministry of Finance is supposed to issue bonds to the central bank equal to the amount of the liquidity support loan which had been disbursed by Bank Indonesia.

Bank Indonesia in turn has threatened to withdraw all the banks' assets it had transferred to the Indonesian Bank Restructuring Agency (IBRA) if the finance ministry refused to reimburse the liquidity support.

The threat has made the issue even murkier because IBRA has sold several of the assets as part of its asset recovery program.

Bank Indonesia declines any wrongdoing, arguing that it injected the liquidity support to the banks based on the government policy directive of September 1997. The central bank at the time was still part of the government but is now an independent institution under a new law enacted in May, 1999.

Forcing Bank Indonesia to be responsible for the misuse in the liquidity support loan would render the central bank bankrupt or require it to seek massive recapitalization.

Satrio agreed that the government should be responsible for the liquidity support injected by the central bank since Sept. 3, 1997 because it was a cabinet decision, but he also insisted that the process of the loan disbursement must be thoroughly checked to ensure that Bank Indonesia channeled the money to the right banks.

Satrio said that there had been suspicion that Bank Indonesia had also channeled the loans to banks which were not suffering from a bank run, which was against the criteria set by the government in the September 1997 meeting.(rei)