Sat, 22 Jan 2000

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)