Govt, BI end dispute on BLBI loans

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.