Government guarantee not needed for derivative transactions: BI
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)