IMF seeks new investigation into $13b liquidity assistance
IMF seeks new investigation into $13b liquidity assistance
Berni K. Moestafa and Dadan Wijaksana, The Jakarta Post, Jakarta
Stepping up pressure against corruption, the International
Monetary Fund (IMF) demanded the government launch a new probe
into the alleged abuse of some Rp 138.4 trillion (about US$13
billion) in central bank emergency liquidity loans, as part of
reform targets under a new lending agreement with the IMF.
Bank Indonesia internal finance director Bun Bunan Hutapea
said the IMF and the government had agreed to appoint an
independent consultant to perform the investigation.
"Chances are high that this (probe) will be included in the
upcoming LoI (Letter of Intent)," Bun Bunan told reporters after
a meeting between the government, the central bank, and the IMF
on Saturday.
The LoI is the IMF's lending agreement that contains a set of
economic reform targets.
An IMF team is in Jakarta to work on the fourth LoI, which the
government hopes to sign by the end of the year.
The inclusion of the high-profile corruption case signaled the
IMF's impatience over the slack progress Indonesia has made in
solving the case.
Two separate investigations over two years have failed to lead
to the return of the abused funds or a single prosecution.
The case centers around the extension of some Rp 144.5
trillion in Bank Indonesia emergency liquidity loans to 48 local
banks during the peak of the 1997 financial crisis.
As lender of the last resort, Bank Indonesia channeled the
loans to banks with liquidity problems arising from massive runs.
The emergency loan facility was needed to avoid a systemic
collapse in the banking sector.
But an audit by the Supreme Audit Agency (BPK), revealed last
year that Rp 138.4 trillion, almost all the money, had missed its
target.
In a report, BPK said that banks had used the loans to
speculate against the rupiah, acquire fixed assets, and even to
rechannel them in the interbank market.
Defying risk management, Bank Indonesia extended the loans
without securing adequate collateral from the borrowing banks.
BPK heaped the blame for the abused funds on Bank Indonesia.
"This amount (Rp 144.5 trillion) has now become the state debt
to the central bank with an annual interest of 3 percent," BPK's
report said, adding that none of the banks had thus far returned
the loans.
Around Rp 100 trillion of the loans went into five banks with
close ties to former president Soeharto.
The government issued bonds, which Bank Indonesia assumed in
exchange for lending the money.
Servicing the interest payments on these bonds has put a heavy
lid on the state budget, crippling its spending ability.
BPK's findings also sowed a protracted dispute between the
government and the central bank, over who should bear the
responsibility of the abused funds.
Without the government shouldering some of the burden, the
central bank is certain to go bankrupt.
The finding led to legislators and the previous government
pushing for an amendment of the central bank law.
An amendment would allow them to replace the current board of
governors, whom they held as most responsible for the loan scam.
Yet the plan has faced resistance from the IMF, reasoning the
move could undermine Bank Indonesia's hard-won independence.
The IMF, which some blamed for failing to prevent the loan
abuse from occurring, was criticized for its stance.
Bank Indonesia was under the IMF's direct supervision when the
emergency liquidity support scheme got out of control.
Legislators concluded their own probe last year, in which they
named several top central bank officials as possible suspects.
They include Bank Indonesia Deputy Governor Miranda Goeltom
and the now non-active Aulia Pohan.
Bank Indonesia director, Bun Bunan said the central bank was
open to any new investigation.
"This needs to be done and be over with," Bun Bunan said.
Meanwhile, legal banking expert Pradjoto said the independent
consultant in charge of the new probe needed a clear guiding
agenda.
"The challenges they are about to face in resolving this case
are enormous. But the main prerequisite needed for them to work
effectively is that they ought to have the ability to conduct a
trace-back system towards all those accounts relating to the
liquidity supports given by the government," Pradjoto told The
Jakarta Post over the weekend.