Government told to take corrective action over BI problems

Government told to take corrective action over BI problems

JAKARTA (JP): The International Monetary Fund has told
Indonesia to take corrective action to deal with problems at Bank
Indonesia which were highlighted in a damning audit by the
Supreme Audit Agency (BPK).

IMF Indonesia representative John Dodsworth said on Monday the
fund agreed with the government's proposal to recapitalize the
central bank should the audit agency's clarification audit on
BI's assets prove a negative equity.

"I think the corrective actions will include some
recapitalization of Bank Indonesia, and the exact amount,
however, needs further review."

He noted that the recapitalization of the central bank would
be financed by government bonds.

"Clearly, we want Bank Indonesia to be a solvent central bank
with full credibility in the market."

Dodsworth said IMF experts would arrive in Indonesia this week
to outline the corrective measures together with government
officials and representatives of BPK and Bank Indonesia.

The corrective measures would be included in the next letter
of intent to be signed by the government and the IMF in the
middle of this month, he said.

"By mid January, when we are ready to sign the letter of
intent, we have to have a scheme for the corrective actions to
take place," he said.

The IMF is the lead arranger of a multibillion dollar
international bailout package for Indonesia. Signing the letter
of intent is a prerequisite for the release of loans from the
fund.

Bank Indonesia administrators were taken aback by the
announcement of BPK's audit.

Bank Indonesia's board of governors have repeatedly contended
that the damaging "no opinion" conclusion by BPK on BI's balance
sheet per May 17 -- the date it legally becomes independent of
the government -- would not have happened if it was given a
chance to discuss the matter with the auditors.

They argued that differences between the government and the
central bank on the status of Rp 51.7 trillion of emergency
liquidity credits should have been settled first before BPK drew
any conclusion or announced the result. The credits were extended
by the central bank to commercial banks since late 1997 under the
government's blanket guarantee program.

The government and BPK went ahead with announcing the results
of the audit. They demanded the central bank take drastic
corrective measures regarding its personnel, organization,
internal supervision systems and the supervision of banks.

The government asked the House of Representatives to assign
BPK the task of conducting an investigative audit, especially on
the disbursement of emergency liquidity loans to commercial
banks.

Former finance minister Fuad Bawazier supported the
government's move and said he conducted a preliminary audit of
BI's emergency credits and found some irregularities when he was
briefly finance minister in early 1998.

BI deputy governor Miranda S. Goeltom said on Monday BI had no
objection to BPK or the government's Development Finance
Comptroller (BPKP) auditing the disbursement of such emergency
loans. However, she believed the audit should also cover the
recipient banks.

However, she was displeased with the forced announcement of
BPK's audit report on BI, arguing that it would have a damaging
impact on BI's yankee bonds, BI's credibility to guarantee
letters of credits and the central bank's capability to absorb
the government bonds to recapitalize commercial banks.

Dodsworth disagreed with predictions of the audit's impact. "I
don't think that we're going to see very much market disruption
as a result of the disclosure of the audit. I don't see in this
audit anything that would suggest that Bank Indonesia is not
going to meet its obligation.

"On these grounds, we see a lot of advantages from
transparency. Bank Indonesia will come out stronger as a result."