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)