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.