Official backs sweeping power for banking agency

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)