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.