Government guarantee not needed for derivative transactions: BI

JAKARTA (JP): Bank Indonesia Governor Sjahril Sabirin said on Wednesday he would propose bank derivative transactions be excluded from the government blanket guarantee program.

But he said interbank loans, savings and deposits must still be guaranteed because the banking sector remained tenuous.

"I can only propose (the move) because the blanket guarantee program is based on a presidential decree," he told House Commission VIII for the state budget and finance during a hearing session.

The House demanded the country's banking authority exclude interbank loans and derivative transactions from the blanket guarantee program to minimize budgetary spending on the government bank restructuring program and to prevent abuse of the program.

"I think in the current situation interbank loans must still be guaranteed," Sjahril said.

The blanket guarantee program was launched on Jan. 26, 1998, to restore public confidence in the ailing banking sector and avert a complete collapse of the banking sector.

The program, which was issued under Presidential Decree No. 26/1998, was basically designed to guarantee all banking sector obligations for a two-year period until the end of January next year.

The Indonesian Bank Restructuring Agency (IBRA) must announce the move six months before the government ends the blanket guarantee program, otherwise the program is extended.

The government plans to introduce a deposit insurance system to replace the program.

Sjahril said the blanket guarantee program had been crucial in preventing the banking sector from collapsing when it was hit by a massive bank run last year in the wake of the financial crisis.

"The Presidential Decree No. 26 has saved our banking system. Without the guarantee program we might no longer have had a bank," he said.

He acknowledged that amid improving confidence in the banking sector it was necessary to revise the program to ease pressure on the state budget.

"But the timing must be considered very carefully by taking into account the state of the banking sector.

"Limiting the coverage of the guarantee program will certainly ease the burden on the state budget. But if it occurs at a time when the condition of the banking sector has not fully recovered, it will push down confidence in the banks and jeopardize the overall bank restructuring program," Sjahril said.

Several experts have also called on the government to limit coverage of the blanket guarantee program to only include bank savings and deposits. The calls have been made particularly in the wake of the high profile Bank Bali scandal, which revealed that the interbank loan guarantee program was open to abuse.

The Bank Bali scandal revolves around the "illegal" transfer in the form of a commission fee of some US$80 million from the bank to a private firm to help the bank recoup its interbank loans on closed down banks.

Bank Bali was not supposed to use the service of the private firm because the loans are guaranteed. There have been allegations that government officials were involved in the scandal to allow the illegal transaction, which would raise the budgetary spending to recapitalize the bank.

Monitoring

Meanwhile, Bank Indonesia deputy governor Achjar Iljas said on Wednesday the central bank had delayed the introduction of a regulation setting the minimum amount of foreign exchange transfer to or from the country which is subject to compulsory reporting.

"We're still trying it out with several banks," Achjar said on the sidelines of the hearing session.

"We don't want to make banks pay a penalty for violating the ruling just because they aren't ready."

The ruling was supposed to be issued last month.

The House passed in April a bill that empowers Bank Indonesia to monitor the flow of forex, by requiring that all transfers of capital in and out of the country be reported.

The law on the forex flow stipulates that every person or legal entity within the country is required to inform banks or other parties appointed by Bank Indonesia about the transfer or flow of a stipulated amount of foreign currency or rupiah to or from the country.

The minimum transfer amount requiring reporting would be set under the central bank regulation.

Achjar declined to disclose the minimum forex transfer that would be subject to reporting. (rei)