Investigation into loan abuse to be accelerated

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)