Central bank fires back at state auditors

Central bank fires back at state auditors

JAKARTA (JP): Bank Indonesia fired back at the Supreme Audit
Agency (BPK) on Sunday after the latter claimed that
irregularities in the central bank's books prevented it from
forming any opinion regarding the health of the bank.

BPK Chairman Satrio "Billy" Joedono and Minister of Finance
Bambang Sudibyo visited the House of Representatives on Friday to
present the agency's report of Bank Indonesia's financial
position as of May 17, the date it legally became an agency
independent of the government.

Bank Indonesia had earlier asked BPK to delay the presentation
until after it had a chance to discuss it with the auditors, and
warned that premature public disclosure could damage the
reputation of Indonesia's monetary system.

Billy and Bambang also told reporters on Friday that Bank
Indonesia's equity had turned negative and that it needed to be
recapitalized.

The report also pointed out at "weak internal controls" of
Bank Indonesia that led to the auditors' inability to fully carry
out the auditing process.

Bank Indonesia Governor Sjahril Sabirin said on Sunday that
BPK was only required by law to audit the bank's balances at the
start of the period when it became an independent agency.

"Bank Indonesia does not see any clause calling for an opinion
about starting balances," it said in a statement.

It accused state auditors for using different accounting
standards from those followed by the central bank which had been
approved by the government and the International Monetary Fund.

Sjahril, who called a media conference on Sunday, said that
given the sensitivity of the issue, he would have preferred to
discuss the matter with BPK behind closed doors. Since BPK made
public its findings, the bank was obliged to respond, he said.

Bank Indonesia said it would welcome the government's plan to
conduct an investigative audit on the emergency liquidity
supports extended by the bank.

One crucial point of debate between the bank and its auditors
is regarding the status of Rp 51.7 trillion of the liquidity
credits that were extended to bail out many commercial banks
during the economic crisis in 1997-98.

The money was part of the Rp 164.5 trillion (US$23.5 billion)
in liquidity credits channeled by Bank Indonesia as part of the
government's blanket guarantee on all banks.

The Ministry of Finance claimed that Rp 51.7 trillion of these
loans did not meet the criteria under the blanket guarantee
agreement.

Bank Indonesia agreed that the criteria were still in
dispute.

Bank Indonesia Deputy Governor Aulia Pohan, speaking at the
same media conference, warned that unless the government accepted
the claims, 20 banks could collapse, according to detik.com.

Aulia said the current government could not simply renege
commitments made by the previous government of President B.J.
Habibie which issued the guidelines for the liquidity credits.

In an apparent attempt to limit the damage caused by his
report, Billy said on Friday that Bank Indonesia could still
continue its interbank clearing activities and would be able to
meet its obligations despite its negative equity position.

BPK conducted a general audit on Bank Indonesia's initial
report per May 17 from Sept. 1 through Dec. 7, assisted by
independent auditor Siddharta & Harsono/KPMG.

The agency tagged a "disclaimer" or "no opinion" label on its
audit of Bank Indonesia.

"The results of this audit, however, are not about the life
and death of Bank Indonesia. These results are about openness,
about transparency," he said.

He said the reason why the agency gave such a conclusion was
the serious weaknesses in the central bank's internal control.
For instance, Bank Indonesia did not have a complete and reliable
list of fixed assets and inventory of assets.

Other weaknesses in the bank's internal control included the
fact that Bank Indonesia did not have certificates of ownership
for its gold assets deposited in overseas custodian banks.

Bambang said the government was prepared to recapitalize to
fill the hole in the central bank's balance sheet. "With approval
from the House, the government will recapitalize this negative
equity," he said.

He said the government had secured the IMF's approval and it
was now up to the House.

Bambang also called on the House to assign BPK to follow up
the audit results by conducting an investigative audit on BI.

Based on the results of BPK's investigative audit, the
government will assign the Attorney General's Office to take
legal proceedings against those suspected of committing criminal
actions.

He suggested that Bank Indonesia reevaluate, in one month's
time, all its assets based on the current fair market value to
determine its equity. (06/rid)