MOU on BI emergency funds nears completion
Dadan Wijaksana, The Jakarta Post, Jakarta
Bank Indonesia expects the drawing up of a mechanism for the disbursement of emergency funds for troubled banks in the future to be completed soon, so that it could be endorsed by the House of Representatives sometime next month.
Bank Indonesia senior deputy governor Anwar Nasution said on Wednesday the central bank and the Ministry of Finance were in the final stages of discussions on the matter, and a memorandum of understanding (MOU) was expected to be signed afterward.
But he added that the mechanism set under the MOU could still be revised after being debated at the House.
"The House has to give the go-ahead on the MOU in this case, including giving suggestions. They have the right to do that as we're talking about state funds here," Anwar told reporters.
He was quick to add, however, that it should be completed before the closure of the Indonesian Bank Restructuring Agency (IBRA) on Feb. 27.
The disbursement of emergency funds for troubled banks forms a major part of Bank Indonesia's role as a last resort lender. This basically will allow the central bank to give a sort of liquidity support facility whenever a bank is in trouble which could lead to a systematic collapse of the overall banking sector.
The plan has received considerable attention from various parties considering that a huge amount of similar emergency funds had been abused when disbursed to troubled banks during the 1990s financial crisis. At the time, there was no clear criteria or mechanism for the disbursement of the funds as the decision was taken during a crisis period, analysts have said.
Critics have said that without clear guidelines and criteria, the emergency fund facility would be abused by bad bankers.
The new mechanism is expected to provide detailed procedures and criteria for disbursing the emergency funds, as well as a mechanism to later collect the funds from the recipients.
Minister of Finance Boediono has said that the new concept was aimed at preventing a similar scenario to the 1990s banking crisis from occurring.