Govt's liquidity loan policy confusing

The government has extended by one year the deadline for the repayment of liquidity support loans to ailing banks. Lawyer Todung Mulya Lubis looks at the legal impact of the delay.

Question: What is your reaction to the government's inconsistency over deadlines for a number of banks to repay the liquidity support loans that they received from Bank Indonesia, the central bank?

Mulya: By extending the deadline for the loan repayment from Sept. 21, 1998, to five years' time and revising it again to one year's time, the government has confused everyone, particularly bankers and investors interested to acquire shares in the debtor banks, whose operations are now being suspended or taken over by the Indonesian Bank Restructuring Agency (IBRA).

Sultan Hassanal Bolkiah of Brunei and Citibank of the United States, for example, reportedly have shown their interest in buying Bank Central Asia shares, while ABN Amro of the Netherlands wants to acquire shares in Bank Danamon.

From the legal perspective, we can raise the question of whether the government, in setting the new deadline (after realizing that the banks could only provide about Rp 1 trillion (US$95,000) in cash, and the remainder would be paid in assets), actually wants to punish the bankers or to recover the loans already extended to them.

If the government wants to punish delinquent bankers, it will be easy for it to bring those who have violated regulations on legal lending limits and abused the use of their support liquidity loans to court and then imprison them. But the bankers will most likely let themselves to be sent to jail and, as a consequence, the government will never be able to recover all of the loans, totaling more than Rp 120 trillion.

But if the government wants to recover all the loans, even one year will not be enough for the debtor banks to sell their assets at proper prices on account of the severe economic crisis.

I think punitive measures should be taken only as a last resort when bankers do not show a serious commitment to repaying their debts. The most important thing is recovering the funds which are badly needed to finance the restructuring of the banking industry and a more general economic recovery.

Q: How could the government be so inconsistent about introducing banking policies?

M: Basically because the government is politically weak and the IBRA officials have no clear vision and perspective on how to overcome banking problems.

I wonder whether the changes of policy have been caused by political pressures or by the domination of foreign experts at IBRA.

Q: Do you believe that the ministers or IBRA officials have no courage to deal with banking executives or owners like Bambang Trihatmodjo and Sudwikatmono (a son and cousin of former president Soeharto)?

M: There should be no reason for the government, which currently needs legitimacy from the people, to be afraid of dealing with conglomerate owners who were politically and economically strong during the Soeharto administration.

A strict stance against such conglomerate owners is actually a source of legitimacy for the government.

Q: Is there any legal basis for the government to punish bankers who fail to repay the liquidity loans by the deadline but have not violated any banking regulations, such as the legal lending limit?

M: I think the government, when pouring liquidity loans into banks rushed by depositors after the liquidation of 16 insolvent banks in November 1997, did not set any deadline for the repayment of the loans or sanctions against defaulters. However, the banks must repay their debts and they have signed agreements with the Attorney General's Office, ceding their assets as collateral for the repayment -- even though there is a difference between the banks and IBRA on the value of the assets.

Q: Why has the government assigned the Attorney General's Office, instead of IBRA to collect the liquidity loans?

M: That is because there is a controversy over whether the case should be subject to the criminal code or civil law. As some parties consider the case a criminal one because it involves state funds, the debt collection has been assigned to the Attorney General's Office. However, the Attorney General has appointed the deputy attorney general for civil and state administrative affairs, not the deputy attorney general for special crimes, to deal with the debt collection. This means that the Attorney General's Office itself regards the case as subject to civil law.

I myself consider the case a civil affair because it involves relations between creditor and their debtors under an extraordinary situation -- the severe economic crisis. (riz)