Government told not to overburden BI

Government told not to overburden BI

Berni K. Moestafa, The Jakarta Post, Jakarta

Bank Indonesia said its ability to share the burden of the
allegedly abused emergency liquidity loans worth Rp 138.4
trillion (US$13.3 billion) was limited, and that demanding more
meant the government would need to fill in the gap.

Bank Indonesia Governor Sjahril Sabirin said on Tuesday that
under an earlier deal with the government, the central bank will
only cover Rp 24.5 trillion of the total loans allegedly abused.

"Apparently some people do not agree (with the previous deal)
and want to change it again," he told reporters on the sidelines
of a post Idul Fitri gathering at Bank Indonesia.

Sjahril said he was fine with seeking a new burden-sharing
deal, but warned of the central bank's limited ability.

"We may be able to cover more than that amount (Rp 24.5
trillion) this year, but we don't know next year," he said.

Initially, under the 1998 Letter of Intent (LoI) with the
International Monetary Fund (IMF), the government agreed to hold
full responsibility for the cost of bailing out local banks.

The government through Bank Indonesia extended Rp 144.5
trillion in liquidity support to 48 local banks that were hit by
massive runs at the peak of the 1997 financial crisis.

But a report by the State Supreme Audit Agency (BPK) revealed
that of the Rp 144.5 trillion extended, almost all or some Rp
138.4 trillion had missed its target.

As the government issued state bonds for the loans, it must
pay Bank Indonesia interest rates on these bonds as well.

The government blamed the central bank for neglecting its own
prudential banking rules when extending the loans.

At the time the loans were channeled, Bank Indonesia was
placed under the IMF's direct supervision. The fund has thus far
kept quiet on its supervising role during that period.

In a shift from the 1998 LoI, the government demanded Bank
Indonesia take responsibility for some of the abused loans.

Last year, a deal was reached to split the burden, with Bank
Indonesia shouldering Rp 24.5 trillion. But the deal had not been
finalized as it required the House's approval.

Now, the IMF has called for a new deal under the current LoI.

Sjahril said the central bank would raise the funds for the
burden-sharing deal from its surplus capital. However, by law its
capital must stay at a minimum of Rp 2 trillion.

Under the central bank law, the government must recapitalize
Bank Indonesia if its capital level falls below the minimum
level.

"I've always said that all this is like passing money from
one's left pocket to one's right pocket," Sjahril said.

Under the fourth LoI, which the government signed last week,
an independent team of bank experts will assess how much Bank
Indonesia can shoulder.

"The government of Indonesia and Bank Indonesia are committed
to resolving this issue by no later than March 2002," the
government said in its LoI to the IMF.