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

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.