Govt's liquidity loan policy confusing

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)