House okays govt plan on Rp 40t bonds

House okays govt plan on Rp 40t bonds

JAKARTA (JP): The House of Representatives on Tuesday approved
the government's plan to issue some Rp 40 trillion (US$4.46
billion) worth of new bonds to replenish the so-called Bank
Indonesia account number 502 for financing the government's
blanket guarantee scheme for bank deposits.

"The House realizes the importance of replenishing this
account to give a guarantee to the public that their deposits are
safe in our banks," chairman of House Commission IX on finance
and the state budget Benny Pasaribu said at a meeting with
Minister of Finance Boediono.

The bond issue is part of the latest government agreement with
the International Monetary Fund.

But the Tuesday meeting failed to arrive at a decision on the
key government plan to divest a 51 percent stake in the publicly
listed Bank Central Asia (BCA), which is also part of the deal
with the IMF for the disbursement of the next $400 million loan
tranche of the Fund's lending program to the country.

Legislators agreed to discuss the BCA divestment program on
Wednesday.

Under the blanket guarantee scheme, the government promises to
cover all the liabilities of closed banks, including guaranteeing
the security of depositor funds. With the possibility of more
banks being closed down by the end of this year, the IMF has
asked the government to replenish the 502 account.

The House said that its approval came subject to the condition
that the planned bonds be issued under a separate account to the
current 502 account to allow the existing account to be audited
amid suspicions of misuse.

"We would suggest that the existing account be audited first
to ensure that there has been no misuse of the funds in the past,
and that the new bonds issued will be clearly accounted for by
the Cabinet," legislator Rizal Djalil said.

In June 1999, the government issued Rp 53.7 trillion in bonds
under BI account 502, to instill public confidence in the banking
sector after the 1997 closure of 16 private banks led to massive
runs on other banks.

Boediono told legislators that between Jan. 26, 1998 -- the
time when the blanket guarantee scheme was initiated -- and Aug.
25, 2001, some Rp 25.75 trillion had been used by the Indonesian
Bank Restructuring Agency (IBRA), and Rp 23.6 trillion by BI,
with a balance of Rp 4.39 trillion remaining.

More funds were needed as by the end of the year a number of
smaller banks were likely to be shut down for falling short of
the government's minimum capital adequacy ratio (CAR) of 8
percent, BI's deputy governor Anwar Nasution said.

The guarantee scheme required an amount of at least 5 percent
of the banks' total liabilities, which throughout the industry
were now standing at Rp 800 trillion, he said.

However, there have been suspicions that the existing bonds
had also been used to finance IBRA's operating costs as well as
bailing out closed banks.

IBRA chairman I Putu Gede Ary Suta refuted the accusations,
explaining that IBRA's operating costs were taken from the
premiums that the closed banks had to pay for being under IBRA's
care and which were held under account number 519.

The banks under the care of IBRA and subject to the blanket
guarantee scheme had to pay an annual premium of 0.25 percent of
total guaranteed liabilities.

"We did this because when IBRA was first set up it did not
have the funds to operate," Ary Suta said.

Boediono agreed that the account needed to be audited by an
independent auditor and said that the government would appoint
such an auditor as soon as possible. He declined to name the
prospective auditor or the time of the audit.

The House also required the government to redeem past
government bonds from recapitalized banks through asset swap
arrangements.

Boediono suggested that for fiscal 2002, proceeds from the
privatization of state-owned companies and the sale of IBRA's
assets would not only be used to cover the 2002 state budget
deficit but also to redeem bonds so as to reduce the government's
outstanding public debt.

The House also asked the government to accelerate the
establishment of a deposit insurance agency to replace the
existing blanket guarantee scheme as the latter was very costly.

The government would, however, need to inform the public at
least six months prior to the cancellation of the scheme.(tnt/03)