Govt, BI end dispute on BLBI loans

Dadan Wijaksana, The Jakarta Post, Jakarta

The House of Representatives is likely to approve a new deal between the government and Bank Indonesia on a mechanism to resolve a two-year dispute over how to share the burden of misused emergency loans (BLBI) given to ailing banks in the late 1990s.

Under the agreement, the government will issue special bonds called perpetual promissory notes (PPN) to the central bank to cover the loans. This will not create too much of a burden on the cash-strapped government because it does not have to pay interest, but only to the limit where Bank Indonesia's capital condition is not jeopardized. The PPN also do not have maturity profiles.

Government and Bank Indonesia officials declined to provide details of the agreement, saying that it had not yet been approved by the House and that the two still had to finalize the details.

But senior legislator Paskah Suzetta of the House of Representatives Commission IX on financial affairs hailed the plan as the best solution to end the long-standing dispute which had created uncertainty at the central bank.

"I think, this scheme is the most feasible way to resolve the dispute, and it would also ease the burden on the state budget as well," Paskah told reporters on Wednesday.

The government, via the central bank, issued some Rp 144.5 trillion in emergency loans to ailing banks between 1998 and 1999.

The government was supposed to cover the loans by issuing bonds to Bank Indonesia, but it declined to do so after an audit by the Supreme Audit Agency (BPK) revealed that some Rp 134.5 trillion had been misused by recipient banks. The government then demanded the central bank to take responsibility for the mismanagement, and asked it to also share the losses.

But forcing Bank Indonesia to cover the huge losses would send the central bank into bankruptcy.

Late in 2000, the government and Bank Indonesia agreed on a burden sharing mechanism, under which the central bank would cover some Rp 24.5 trillion of the abused loans. But the deal lacked support from legislators.

Then the IMF proposed an independent team of experts to seek a solution to the problem. The team then recommended the issuance of the PPN.

It is not yet clear when the House would give its formal approval on the new mechanism.

The new deal should help ease the burden of the state budget in covering the interest rate of huge government bonds issued in the late 1990s to bailout ailing banks.