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."