Huge loan scam revisited

Huge loan scam revisited

If determining the proportion of burden-sharing, not establishing justice, is really the main purpose of another independent audit to be conducted on the alleged misuse of Rp 138.4 trillion (US$13 billion) in emergency liquidity credit given by the central bank in 1997 and 1998, then such an exercise will simply end up being another blatant mockery of the law.

We were earlier encouraged by the revelation by a Bank Indonesia executive that the International Monetary Fund (IMF) had asked the government to conduct a new independent audit of the suspected huge loan scam.

But it was a great shock to learn, from the explanation made by Minister of Finance Boediono last week, that the audit was not designed as a new investigative measure but was aimed at clarifying the proportion of sharing between the government and the central bank related to the huge losses incurred by the program.

If Boediono's explanation was entirely correct, the IMF's request would not only waste money on foreign auditors but would also repudiate Indonesia's Supreme Audit Body (Bapeka), which completed an audit of the loans in cooperation with the accountancy firm, Klynveld Peat Marwick Goerdeler, in late 2000. That recommendation could be the second biggest mistake made by the IMF in handling the country's economic crisis after its first blunder in October, 1997 when it recommended the closure of 16 commercial banks, even though a full guarantee scheme for bank depositors and creditors had not yet been established.

Yet we find Boediono's statement rather confusing because the IMF has never explicitly asked for a new independent audit of the liquidity credit. The Aug. 27 Letter of Intent between the government and the IMF does stipulate the following measure: Finalize the burden-sharing agreement on liquidity credit between Bank Indonesia and the government and resolve all outstanding concerns for Bank Indonesia and the Indonesian Bank Restructuring Agency (IBRA) regarding the liquidity credit arrangements that affected the results of the audit carried out in 2000. This measure is set to be completed by the end of next month.

But determining a burden-sharing proportion alone does not warrant another costly independent audit. Even if this new audit would recommend changes in the sharing proportion for the losses inflicted by the alleged loan misuse, they would mean nothing in so far as the effort to recover the misused loans is concerned. Any increase or decrease in the Rp 24.5 trillion share of losses, which had been set for the central bank earlier this year, would not make any substantial impact on state revenues. It would simply move money from one pocket to another pocket of the state.

Should a new investigative audit be conducted it should be designed to follow up the Bapeka audit findings that Rp 138.4 trillion of the Rp 144.5 trillion in emergency liquidity loans extended by the central bank to the banking industry was provided in violation of the prudential ruling regarding Bank Indonesia's role as the lender of last resort.

A new audit should focus on verifying Bapeka's conclusions that: A significant portion of the credit was not secured with adequate collateral; many banks received credit far in excess of their assets; Rp 80.4 trillion of the total loans was misused by the 48 recipient banks for currency speculation and financing affiliated businesses.

What made the misuse even more heart-wrenching was Bapeka's findings that, while the central bank went all out to defend the rupiah - which plummeted to as low as Rp 16,500 to the dollar in 1998 - many recipient banks used the loans from the central bank for dollar speculation.

It was these findings that should further be verified to resolve the controversy and alleged loan misuse, once and for all, through a proper due process of the law against executives of Bank Indonesia and the Indonesian Bank Restructuring Agency, bank owners and managers responsible for the loan misuse.

The authorities had already smelled something fishy about the liquidity credit extension during the height of the economic crisis, which resulted in the police interrogation of three former directors (now deputy governors) of Bank Indonesia in late 1998. But the investigation was halted without any clear conclusion. They were investigated again this year but again without any follow up measures.

Worse still, none of the bankers found by the Bepeka auditors to have misused the credit have been brought to court. The special investigative committee assigned by the House of Representatives to probe the suspected loan scam also failed miserably to force the Attorney General's Office to push through with its investigations into the huge loan scandal.

If the government is really serious about its anti-corruption campaign, it should give top priority to this huge loan scandal, instead of wasting its resources on petty cases of malfeasance.