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)