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.