Sat, 05 Jul 2003

BPK says BLBI settlement `unjust'

M. Taufiqurrahman, The Jakarta Post, Jakarta

Chairman of the Supreme Audit Agency (BPK) Satrio B. Joedono said that the latest agreement between the Ministry of Finance and Bank Indonesia to recover the huge loss resulting from the central bank emergency loan scheme was "unjust" because it shifted the burden to the taxpayer.

"I've read (about the agreement) from the papers. I am disgusted," Joedono told a press conference on Friday.

"Such a political compromise makes people who have not received a single cent of the loan also bear the burden."

He said that the authorities should have forced the actual borrowers to repay the money in full, and if they failed to do so they must be put behind bars.

After years of lengthy negotiations, the House of Representatives finally approved on Thursday a proposed mechanism for the central bank to recover the money lost through the loan in order to avoid bankruptcy.

Under this proposal, the finance ministry would issue promissory notes to Bank Indonesia. The notes would have no maturity period and do not carry an interest rate. But the finance ministry would have to inject cash to the central bank whenever the latter's capital adequacy ratio (CAR) drops below 5 percent. However, if the CAR rises beyond 8 percent, the excess would be deducted from the government's liability.

According to an initial estimate, the government would have to come up with around Rp 12 trillion in cash as Bank Indonesia's CAR is likely to be less than 5 percent over the next two years.

But this mechanism is not yet final, as the Ministry of Finance and Bank Indonesia still plan to make small revisions, according to officials from the two sides.

The Bank Indonesia emergency loan facility (known as the BLBI loan) was dispersed by the central bank in the wake of the 1990s financial crisis to help banks deal with massive runs. The loans distributed amounted to Rp 144.5 trillion (US$17.6 billion). The government was supposed to repay the central bank, but a revelation by BPK in 2000 that most of the loans had been abused by the recipient banks (the agency faulted Bank Indonesia for this) prompted the government to demand that the central bank also share the burden. Since then, the two sides had been locked in lengthy debate. Bank Indonesia later agreed that it could only cover around Rp 24.5 trillion.

So far, only three former Bank Indonesia directors and 10 former bank owners and executives have been convicted, while others have either been acquitted or have not been taken to court. The government has also seized some assets but many of them have low market value.

Meanwhile, economist Dradjat Wibowo said that there was no other option other than to accept the burden-sharing agreement as it would help create confidence in the central bank and the overall economy.

Indeed, the settlement of the BLBI loan dispute would allow Bank Indonesia to obtain a clean bill of health from its auditor, a crucial factor to ensure market confidence in the bank.