Official backs sweeping power for banking agency

JAKARTA (JP): A key government official has defended the new banking bill vesting the Indonesian Bank Restructuring Agency (IBRA) with controversial special powers, arguing they are imperative to salvage the chaotic banking sector.

Director General of Financial Institution at the Ministry of Finance Susiati B. Hirawan said on Sunday that the government deliberately provided IBRA with the authority to prevent the agency's decisions from being challenged in court.

"If IBRA has to get caught up with courts, it's no longer crisis management. There has to be a special power because we're in a crisis and we need to move fast," she told reporters in a discussion on the new banking bill which is being proposed to the House of Representatives (DPR).

The bill, an amendment to the 1992 Banking Law, will be debated by the House over the next four weeks. The legislature is slated to give its decision on Oct. 16.

Controversy has surrounded the special power for IBRA, which is basically given carte blanche in its efforts to rehabilitate banks under its supervision even when its actions contravene existing laws.

"I hope the DPR can understand this because we're in a crisis situation," Susiati said. She added that IBRA's operations would be made transparent.

Some members of the House have opposed clause 37A extending the special power to IBRA, especially its asset management unit (AMU).

Under the government's bank restructuring plan, IBRA is expected to complete rehabilitating ailing banks under its supervision by the end of this year, while AMU will start absorbing the banks' nonperforming assets and selling them on the market early next year.

Dozens of private banks are under the supervision of IBRA for drawing on Bank Indonesia's liquidity support equivalent to more than 200 percent of their capital.

The liquidity support has been provided by the government since January to help the banks in facing runs on their deposits in the wake of an exhaustion of confidence in the sector.

The agency has also taken over seven large private banks which received liquidity support equivalent to more than 500 percent of their capital.

Three of the banks were suspended last month, while the other four were nationalized, including Bank Central Asia and Bank Danamon, two of the country's largest private banks.

The banks have been given until Sept. 21 to return the credits.

The government also closed down seven other banks in April which also received huge liquidity support.

Susiati said that AMU's first priority would be to absorb and sell the nonperforming assets of the banks in IBRA's hands.

"The proceeds from the asset sale will be used to repay Bank Indonesia's liquidity support," she said.

The central bank has channeled more than Rp 140 trillion (US$12 billion) in liquidity support.

"For non IBRA-banks, they can either form their own asset management company or ask for the help of AMU."

Bank Indonesia director Achwan warned that some studies pointed found that asset management firms established in Latin America to deal with that region's banking crisis had failed.

"That's why we're still studying what are the best alternatives," he said on the same occasion.

The banking sector's nonperforming loans are estimated to reach 50 percent of total outstanding loans of more than Rp 600 trillion. (rei)