Review team on BLBI burden sharing at work

Berni K. Moestafa, The Jakarta Post, Jakarta

An independent team has begun reviewing how much Bank Indonesia and the government should each shoulder of the around US$13 billion in misused liquidity loans, bringing closer to an end nearly two years of disagreements on the burden sharing issue.

A spokesman at Bank Indonesia, Alim Alamsyah said on Monday the team was set up about a week ago, comprising two local and two foreign banking experts.

He said the team was holding a series of meetings this week.

"The government appointed the local experts while the IMF (International Monetary Fund) the foreign ones," Alim told The Jakarta Post.

Another central bank official, who refused to be named, said the foreign experts were two retired officers from the U.S. Federal Reserve and Canada's central bank.

Their names were Stephen Rod and John Crow, the source said, failing to specify each person's country of origin.

The names of the local experts were not immediately available.

The four-man team is part of reform targets under the IMF's fourth Letter of Intent (LoI), under which it should have completed its work by last month.

Progress on meeting the LoI targets will determine whether Indonesia obtains the IMF's next $400 million loan tranche.

It adds pressure on the government to make accountable the around $13 billion in taxpayers' money that went missing during the peak of the 1997 financial crisis.

The money was loaned to 48 banks suffering from massive runs amid plunging confidence in the banking sector during the crisis.

Of the Rp 144.5 trillion (about $14 billion), however, some Rp 138.4 trillion had missed its target, according to an audit in 2000 by the Supreme Audit Agency (BPK).

Around Rp 100 trillion of the loans went into five banks with close ties to former President Soeharto.

BPK charged that banks rechanneled the loans through the interbank market, invested in expansions, or speculated against the rupiah.

In return for extending the loans, Bank Indonesia received government bonds from which it earns yearly interest payments.

Now Bank Indonesia and the government are at loggerheads over who is to blame, and with it the loss each should absorb.

BPK criticized Bank Indonesia for its lax control over the loans' transfer, while the latter said it was acting on the orders of the government.

It is unclear how the review team could come up with a burden sharing deal without looking into the criminal aspect of the abused loans.

Its work would likely focus on how much the central bank could shoulder without disrupting its operations.

By law, Bank Indonesia must have enough funds to ensure it can perform adequately as a central bank.

In late 2000, the government and the central bank came to an informal agreement, which would have required the central bank to absorb Rp 24.5 trillion in losses.

But a deal never got through, as the scheme lacked the support of key central bank executives and legislators.

Law makers set up a committee to solve the issue, but their investigation is still underway nearly two years after the committee was established.

Meanwhile efforts to recoup the misused loans proceed slowly.

The former owners of the banks which misused the loans, agreed to settle their debts in return for not facing criminal charges.

But more than three years after signing their debt settlement deals, most have yet to start repayment.

A large chunk of their debts is being repaid through the transfer of assets, which the Indonesian Bank Restructuring Agency (IBRA) must sell to generate cash.

Thus far this scheme has only managed a recovery rate of just around 15 percent of the amount that the former bankers misused.