Govt to delay debt payments to BI

Dadan Wijaksana, Jakarta

To help ease the burden on the 2005 state budget, the government has been allowed to delay paying debts it owes to the central bank by covering part of Bank Indonesia's expected deficit next year.

The plan was revealed on Thursday during a hearing between lawmakers at the House of Representatives Commission IX on financial affairs and top officials from Bank Indonesia and the Ministry of Finance.

In 2005, the government was to pay back Rp 11.9 trillion (US$1.32 billion) in debt to the central bank -- both the interest and principal. The debt came after the government issued around Rp 73.8 trillion worth of bonds in 1999 to the central bank, part of which was used to cover the government's blanket guarantee program -- a scheme that guarantees all bank's liabilities including deposits when they are closed.

"We intend to temporary skip the payments so we can set aside funds for more productive purposes," Minister of Finance Boediono told the hearing.

Boediono said this would mean the central bank would not be able to maintain its capital adequacy ratio of 3 percent as required by the existing law, which left the government to plug the shortfall. Preliminary calculations by Bank Indonesia show the shortfall amounts to Rp 8.7 trillion. This will be covered by the 2005 state budget.

Boediono said the plug was mandated by the BLBI agreement, a settlement signed by the government and central bank last year.

The BLBI relates to the burden-sharing agreement between BI and the government -- the Rp 144.5 trillion liquidity support facility in the form of bonds that was injected into the banking sector during the late 1990s financial crisis. Under the deal, most of the burden will be covered by the central bank with the government having only to cover the annual interest rate of a mere 0.3 percent during the next 28 years.

To ensure the sustainability of the central bank's operations, a clause was then created that required the government to come to the rescue whenever Bank Indonesia's capital was under threat.

The commission agreed in principle to the proposal but legislator Emir Moeis, who presided over the hearing, asked for a more detailed explanation from Bank Indonesia as to where the figure of Rp 8.7 trillion had come from.

Bun Bunan E.J. Hutapea, Bank Indonesia deputy governor, said that without the government's bail-out, the central bank's capital ratio would stand at about only 1.4 percent.

The deficit was expected mainly because of the huge interest rate burden incurred by Bank Indonesia SBI promissory notes issued during the past year, he said.

"To push it up to the 3 percent level, we need that Rp 8.7 trillion," Bun Bunan said. Next year would be the first time the government had to lend a hand, he said.

"For this year, for instance, BI capital is at around 4 percent -- higher than the requirement."

According to Bank Indonesia's latest financial balance, it posted a surplus in 2003 of Rp 1.5 trillion, lower than the Rp 2.9 trillion surplus the year before.