DPR clears way for use of 502 account

DPR clears way for use of 502 account

The Jakarta Post, Jakarta

The House of Representatives told Bank Indonesia on Friday to
return Rp 14.5 trillion to a government account known as the 502
account, to make way for the payment of overseas obligations of
banks that were closed down during the crisis.

The decision was taken at a joint hearing between House
Commission IX on financial affairs and the Ministry of Finance,
Bank Indonesia and the Indonesian Bank Restructuring Agency
(IBRA).

"The payment to foreign creditors is important as it involves
national pride and shows that we're willing to meet our
obligations," said Emir Muis, chairman of the commission, who
presided over the hearing.

The central bank previously refused to inject the funds amid
fears that it might be faulted for irregularities, as it had been
accused of being irresponsible when disbursing some Rp 144.5
trillion-worth of liquidity facility to bail out troubled banks
during the late 1990s financial crisis (the bailout decision
being taken by the then cabinet).

But according to an audit by the Supreme Audit Agency (BPK),
the loan was mostly misused by the bankers, and the agency
lambasted Bank Indonesia for failing to carry out proper
assessment and supervision, leaving the government (ie.
taxpayers) to cover the losses.

However, Friday's decision leaves Bank Indonesia little choice
but to follow.

Lawmakers stressed the importance of the move, since there was
only Rp 124 billion in funds currently stashed in the 502 account
(held at Bank Indonesia), while the government has to pay out
some Rp 1.4 trillion in obligations of the closed banks. The
obligations to foreign creditors mature next month.

Under the so-called blanket guarantee program, the government
has to cover the financial obligations of all closed-down banks,
including those owed to foreign banks or creditors.

The program was introduced in the late 1990s following the
crisis, to help restore confidence in the nearly-bankrupt banking
industry.

The central bank injected hundreds of trillions-worth of funds
under the program to prevent the banking sector from collapsing
after being hit by the crisis.

Bank Indonesia deputy governor Bun Bunan Hutapea said after
the meeting that Indonesia has so far paid around Rp 5 trillion
of those obligations, all in the form of exchange offers, of
around Rp 10 trillion in total debts, both principal and
interest.

"Under the Frankfurt Agreement, we shall complete the payment
of the exchange offers by 2005. The interest is payable twice a
year," Minister of Finance Boediono said, referring to an
agreement signed in 1998 between the government and the foreign
creditors of the country's local banks regarding a scheme to pay
out on their obligations.

Elsewhere, the House said that while it had agreed to use the
funds in the account for this year's payments, the government
would have to seek its consent to use the account again.