Government doesn't need to 'recapitalize BI'

Government doesn't need to 'recapitalize BI'

JAKARTA (JP): Finance Minister Bambang Sudibyo revealed on
Friday that Bank Indonesia (BI) had massive profits accumulated
from its foreign exchange transactions, and that thereby, the
government did not need to recapitalize the central bank after
all.

But he said that the profits could not reverse Bank
Indonesia's poor financial position because they had not been put
on the asset side of the central bank's balance sheet, but on the
liabilities side.

"I've been told by the IMF (International Monetary Fund) that
there is an item called the stabilization fund in Bank Indonesia
which is put on the liabilities side.

"It is said that the total is Rp 100 trillion. If this is
true, Bank Indonesia is actually rich," Bambang told the House of
Representatives commission IX on banking and finance in a joint
hearing session with the central bank.

"Putting it on the liabilities side is wrong... It's actually
a profit. I know it because I happen to be an accountant," said
Bambang, who was a lecturer in accounting at the prestigious
Gadjah Mada University before being appointed as minister.

"So it (the accounting system) must be revised," he added.

"Don't worry. Bank Indonesia doesn't have to be recapitalized.
What it needs is only an accounting adjustment," he said.

Bambang was responding to concerns among legislators and
economists that the government would have to spend huge amounts
of money to recapitalize BI following a controversial auditing
report that the central bank was near insolvency because of the
mishandling of multibillion dollar liquidity support to ailing
banks in 1997 and 1998.

Bank Indonesia's Sjahril Sabirin confirmed this, but said that
he had yet to calculate the exact figure.

Sjahril said that keeping a stabilization fund was a normal
thing practiced by other central banks as a prudent measure
because much of the fund is unrealized profit used to anticipate
a reverse in the forex market.

But he said that he agreed with Bambang's suggestion.

Sjahril said that BI was beginning to implement the so-called
net currency position, which is a new method in counting the
profits from its foreign exchange transaction.

Under the new method, a gain from a foreign exchange
transaction would be calculated based on the difference between
the selling price of a hard currency and the average purchasing
price of the currency.

Previously, the counting method was based on the difference
between the selling price and the buying price.

BI deputy governor Miranda S. Goeltom said that the
stabilization fund was around Rp 100 trillion before the
implementation of the new net currency position but then dropped
to around Rp 48 trillion following the new counting method.

Meanwhile, the House commission IX would summon all related
government officials including ex-finance ministers and the Bank
Indonesia governor responsible for designing and implementing the
controversial BI liquidity support to help resolve allegations of
possible abuse.

"We'll summon the former top officials soon," head of the
commission IX Sukowaluyo Mintoraharjo said.

Names already listed for questioning included former finance
ministers Mar'ie Muhammad, Fuad Bawazier, and Bambang Subianto,
and former Bank Indonesia governor Soedradjad Djiwandono.

The Supreme Audit Agency (BPK) said in its general audit
report on BI's May 17, 1999, balance sheet that more than Rp 80
trillion of the liquidity support was inappropriately channeled
to the ailing banks.

BPK said that the central bank violated its own criteria in
the channeling of the liquidity support.

The agency also questioned the channeling of more than Rp 9
trillion in liquidity support.

BI has channeled some Rp 164.5 trillion in liquidity support.
The government has issued bonds to the central bank to cover the
liquidity support.

But there have been growing demands from legislators that the
government should not cover all the liquidity support following
the BPK report.

Bambang stressed that the government has no intention to
withdraw the bonds already issued to BI.

He said that if the bonds were withdrawn, the central bank
would automatically debit the cash reserves of the recipient
banks in BI.

"This would cause those banks to collapse. It would be much
more costly," Bambang said.

But he said that what the government wanted was to clarify
whether there was a violation in the channeling of the liquidity
support by officials in the previous government.

"This is important so that there's a clear-cut between the
responsibility of the previous government and the new
government," he said. (rei)