Former BI boss denies accusation of loan fraud

Former BI boss denies accusation of loan fraud

JAKARTA (JP): Former Bank Indonesia (BI) governor Soedradjad
Djiwandono denied on Tuesday accusations that the central bank
improperly channeled liquidity support to troubled banks during
his tenure.

He acknowledged, however, that malfeasance in the use of the
liquidity support might have occurred in some banks due to lack
of supervision by the central bank.

"Just imagine that we only had one supervisor for each bank,
with hundreds of branch offices," Soedradjad said.

The central bank decided in late 1997 to provide emergency
funds to local banks, most of which suffered cash-flow
difficulties due to massive runs during the peak of the economic
crisis in late 1997 and early 1998.

"Back then we never thought the crisis would drag our banks
that low," he said during a break at a closed hearing with the
House of Representatives Commission IX for finance and banking.

Soedradjad was questioned concerning what the Supreme Audit
Agency (BPK) suspected was malfeasance in the channeling of Rp 80
trillion (US$10.6 billion) in the bank's liquidity support.

He was the central bank governor when the funds were channeled
to the ailing banking sector.

He said runs on several large banks after the closure of 16
private banks in November 1997 exceeded BI's expectations, and
led to the disbursement of liquidity funds in high amounts.

BI's policies were based on what the bank believed would be in
the best interest of the national economy, he added.

"We did not try to help the banks' owners, but our prime
concern was the banking system."

He said only BPK's investigative audit of banks which received
the funds could provide a comprehensive picture on how the funds
were used.

"The audit will clear up the confusion over who is responsible
since everyone seems to mix up malfeasance in the fund usage with
malfeasance in fund channeling," he said.

Meanwhile, commission member Ekky Syahruddin of the Golkar
faction said that BI disclosed one instance of fund misuse.

He said Bank Umum Nasional (BUN) was one of the institutions
which improperly channeled BI's liquidity support to finance
companies under its own business group through holdings in third-
party banks.

Among the third-party institutions were Bank Tamara, Bank Rama
and Bank Buana, Ekky said. He did not disclose the amount that
BUN allegedly channeled within its own business group.

The commission summoned on Monday the former owners of BUN,
which BPK data showed obtained Rp 12 trillion in liquidity
support. They denied any wrongdoing in managing the funds.

In reviewing the circumstances which led to the massive
disbursement of BI's funds, the House concluded that the
International Monetary Fund (IMF) should also be held responsible
for the closure of the 16 banks and the subsequent run on major
banks.

Ekky said the commission would conduct a hearing with the IMF
to determine its role in the government's decision to close the
banks.

"BI told us that the government had actually opted not to
close down the banks," Ekky said.

He said it was at the IMF's recommendation that BI, the then
finance minister Mar'ie Muhammad and onetime coordinating
minister for the economy, finance and industry Ginandjar
Kartasasmita closed the banks.(03)