Investigation into loan abuse to be accelerated

JAKARTA (JP): Attorney General Marzuki Darusman vowed on Tuesday to accelerate the investigation of some 48 commercial banks for the alleged misuse of government liquidity supports equivalent to billions of U.S. dollars.

Marzuki said that his office would meet with the Finance Ministry and the Supreme Audit Agency (BPK) this week to make final preparations for the investigation.

"We will accelerate the investigation of the 48 banks," he told reporters following a meeting with senior government officials.

He said his office would need the help of prosecutors from provinces and districts due to the shortage of resources and the large number of cases being processed by the Attorney General's Office.

He said that investigating one bank might require four to five prosecutors.

He also said the government would impose a travel ban on the bankers if deemed necessary.

The government, via the central bank, channeled some Rp 144.5 trillion (US$17 billion) in liquidity supports to 48 commercial banks between 1998 and 1999 as confidence in the industry tumbled to its lowest point. Many banks suffered massive runs during the bleakest period of the economic crisis.

According to an investigative audit completed by BPK last week, some Rp 138.4 trillion (95 percent) of the emergency loans had either been misused or were extended in violation of banking regulations.

BPK said that the emergency loans were supposed to be used only to reimburse depositors during the massive runs, but the banks used the money for other purposes including foreign exchange speculation, lending to affiliated business groups and for repaying subordinated loans.

The agency laid the blamed for the misuse of the huge liquidity credits squarely on the extremely poor quality of the central bank's supervision.

The report said that the central bank depended too much on off-site supervision (assessing written reports), whereas many commercial banks had manipulated their financial reports for years.

The investigative audit was ordered by the House of Representatives due to alleged malfeasance in the extension of liquidity support by the central bank during the peak of the country's financial crisis. The crisis led most banks into financial distress and set off massive runs on banks.

The Rp 144.5 trillion in emergency loans has now become the government's debt to Bank Indonesia, the central bank. The government will issue bonds to cover the debt, but it wants to clarify first whether there was wrongdoing in the granting of the emergency loans.

More than Rp 100 trillion of the loans were channeled to five banks -- the nationalized Bank Central Asia (BCA), Bank Danamon, Bank Subentra, Bank Umum Nasional (BUN),and the now defunct Bank Dagang Nasional Indonesia (BDNI).

The Indonesian Bank Restructuring Agency (IBRA), a unit of the finance ministry, signed an agreement last year with some of the recipient banks including BCA, BDNI, and BUN.

Under the agreement, called the Master Settlement and Acquisition Agreement (MSAA), the former bank owners would surrender assets to repay their obligations.

But the MSAA agreement became controversial after Coordinating Minister for Economy, Finance and Industry Kwik Kian Gie said late last month that the agreement would cause the state to suffer huge losses because the former bank owners were not obliged to settle remaining debt if it turned out that the assets pledged were not sufficient to cover the debts.

The government has said that it would review the MSAA agreement. (rei)