Govt to set up special unit to take over role of IBRA

The Jakarta Post, Jakarta

A special unit under the Ministry of Finance will be established to take over the role of the Indonesian Bank Restructuring Agency (IBRA) in implementing the government blanket guarantee program on bank deposits, when the agency's mandate expires by Feb. 27 next year, a senior official at the ministry said.

The government has said that it would not extend the five-year mandate of IBRA, meaning that the powerful agency -- the executor of the guarantee program -- will be closed down on Feb. 27 as scheduled.

Ministry financial institutions director general Darmin Nasution, speaking Tuesday, did not say when the special unit would be set up but said details were still being worked out and would be announced in the near future.

The unit, to be called the banking guarantee implementation unit (UP3), would operate on a temporary basis -- pending the planned establishment of a deposit guarantee agency (LPS), which needs more time to be set up as the government has yet to finish drafting the law as the legal basis for the agency.

Darmin also said the LPS would need around one year of preparation after enactment of the law to be effective, possibly in 2004.

The UP3 only needed a ministerial decree as its legal basis.

The government has said that due to its temporary nature, the UP3 would take over part of the current roles of IBRA in executing the guarantee program, especially those related to administrative tasks.

Its most important job will be managing and collecting premium fees from national banks participating in the blanket guarantee program, which amounts to 0.25 percent of third party liabilities. With the country's total third party funds standing at more than Rp 900 trillion currently, UP3 could collect annual premium fees amounting close to Rp 2 trillion.

The setting up of the new agencies, both UP3 and LPS, is part of the government's plan to gradually terminate the blanket guarantee for bank deposits and other liabilities.

As reported earlier, the government plans to phase out the scheme especially for big depositors, while for the small depositors, it will continue to protect them via a new deposit insurance scheme to be managed by the LPS.

The blanket guarantee scheme was first introduced in 1998 to help revive confidence in the ailing banking sector, badly hurt by the devastating financial crisis in 1997-98. It was also meant to avoid widespread panic when the government had to close down banks.

Under the scheme, if a bank is closed down, the government would cover all of the banks' obligations, including their third party liabilities. It was the absence of such a scheme that was believed to have helped cause massive capital flight during the early period of the crisis, when the government closed down a number of local banks.

However, to minimize the cost of any bank failures to the state -- as well as removing the moral hazards among bankers, the government came up with the idea of gradually terminating the program.

Elsewhere, asked whether the establishment of UP3 in such a short time would cause difficulties, Darmin suggested to recruit some of IBRA's professionals who have been in charge of the program during their tenure at the agency.

"Workers from IBRA could be placed in the unit. They could be assigned through probably a presidential decree to control the program," he said.