Govt asked to sit with BI over 'misused' loans

Govt asked to sit with BI over 'misused' loans

JAKARTA (JP): The central bank and the government should sit
together to reach an agreement on how to share the burden in the
mishandling of past massive emergency liquidity loans for
troubled banks, according to Bank Indonesia deputy governor
Burhanuddin Abdullah.

Burhanuddin said on Friday it was crucial to reach the same
understanding on the "criteria" used to channel the liquidity
support loans in the past.

"Bank Indonesia and the Ministry of Finance should sit
together to reach agreement on the criteria," Burhanuddin told
reporters following Friday prayers at the central bank
headquarters.

"A clear criteria will decide who will cover what and how
much.

"I'm optimistic that this can be settled, so that the economy
will move again. I believe that the sun will shine again
tomorrow," he added.

The emergency liquidity support has turned into controversy,
creating tension between the independent central bank and the
government.

The government via Bank Indonesia channeled more than Rp 144
trillion in emergency loans to 48 commercial banks between late
1997 and early 1999 to bail out banks facing massive ruin when
confidence in the industry plunged to its lowest point.

The closure of 16 insolvent banks in November 1997, as
recommended by the International Monetary Fund, triggered the
deterioration in confidence, while the social and political
crisis the following year further worsened the condition.

The government launched the policy at the time to prevent a
systemic and complete collapse of the country's banking sector.
The central bank, part of the government at the time, channeled
the loans as the lender of last resort.

Bank Indonesia became an independent central bank in May last
year.

But a recent audit by the Supreme Audit Agency (BPK) revealed
that some Rp 138.4 trillion of the Rp 144.5 trillion emergency
loans had been misused by the banks, putting the state at risk of
huge losses.

While the loans were only meant for returning depositors
money, the banks used them for other purposes, including for
derivatives transactions for dollar speculation and lending to
affiliated parties, BPK said.

The audit agency blamed the weak supervision of Bank Indonesia
for the massive misuse of the loans.

There has also been accusations of collusion between central
bank officials and bank owners, particularly as many of the banks
received the loans in excess of the size of their assets. The
loans were also not backed up with collateral.

The government was supposed to issue bonds to finance the
emergency loans. But it said it would only issue the bonds to the
central bank until the controversy had been settled because the
interest rate cost of the bonds would be financed by taxpayers.

Having Bank Indonesia pay the potential loss of the state as
revealed by BPK would send the central bank either into
bankruptcy or see it undergoing a recapitalization program.

Bank Indonesia sent a letter earlier this week to the
government and BPK, seemingly to dispute the BPK findings.

But Burhanuddin said the letter was merely to explain the cost
to the government if the emergency loans were not provided.

He added that the cost to the state was not as huge as
revealed by BPK because the former bank owners had surrendered
some assets now under the management of the Indonesian Bank
Restructuring Agency (IBRA).

"It must be calculated again," he said.

"I don't think we should talk of numbers right now because
there are already too many numbers circling around which only add
to the confusion," Burhanuddin said when asked the amount of loss
that must be covered by the government.

"The important thing is that we all must sit together to
discuss the criteria ... and to seek a political solution," he
said.(rei)