Burhanuddin optimistic on resolving BLBI dispute

The Jakarta Post, Jakarta

Bank Indonesia Governor Burhanuddin Abdullah has expressed optimism that an agreement could soon be reached on how to resolve the financial mess resulting from the disbursement of liquidity facility (BLBI) to troubled banks in the late 1990s.

"I hope it will not continue to drag on. I'm optimistic it can be settled," he was quoted by Antara as saying following a meeting with People's Consultative Assembly (MPR) Chairman Amien Rais on Tuesday.

He said the central bank and the finance ministry would soon resume negotiations over the issue with the House of Representatives Commission IX on financial affairs.

Burhanuddin said the central bank was open to demands from the Indonesian Bank Restructuring Agency (IBRA) to be included in the talks.

"To make all things clear, it would probably be better if we hold talks with IBRA," he said.

He did not provide details.

The central bank channeled Rp 144.5 trillion (around US$17.5 billion) in liquidity support facilities to some banks between 1997 and 1998 to help them cope with the massive bank runs at the time. The finance ministry is supposed to subsequently reimburse the central bank, but it backed off from the commitment following revelations that most of the money was misused by the banks and their owners. The ministry faulted the central bank for poor supervisory work.

Since 2000, the central bank and the finance ministry had been engaged in a dispute on who should cover the financial losses.

Only recently the two sides agreed on a burden sharing mechanism, under which the ministry would issue perpetual promissory notes. The House, however, has yet to approve the deal.

Last week, IBRA Chairman Syafruddin Temenggung challenged the agreement, by saying that out of the Rp 144.5 trillion in liquidity support facility, only around Rp 129.42 trillion was backed up with collateral mainly in the form of securities, and only Rp 12.34 trillion had commercial value. The central bank had transferred the securities to IBRA, which is in charge of selling the assets to recover some money.

IBRA demanded that it be included in the current negotiation process.

Seeking settlement for the four-year dispute over who should cover the financial losses is crucial, not only to instill certainty to government finances, but is also important to maintain confidence in the central bank.