Solution to the BLBI case

Solution to the BLBI case

The Bank Indonesia Liquidity Support Loan (BLBI) case has
become an issue of public concern in Indonesia since May 1999,
after the Supreme Audit Agency (BPK) audited the flow of BLBI
funds to banks. Since then, there have been two investigations
into the BLBI, which have come up with different interpretations.

First, the working committee of the House of Representatives
(DPR) concluded in August 2000 that the BLBI was government
policy. The case started with the conversion of local banks'
negative balances in Bank Indonesia (BI), which were then
converted into special money market securities in 1997. Banks
with negative bank balances were still allowed to participate in
clearing.

BI's policy was based on a presidential directive issued in
April 1997, which was against the closure of banks until the
People's Consultative Assembly (MPR) ended its meeting in April
1998. The directive called on BI not to take steps that could
spark social and political upheaval.

Given the above directive, a Cabinet meeting on Sept. 3, 1997
decided: 1) the granting of liquidity assistance to sound banks;
2) the merger or acquisition of really unsound banks. If, with
those options, the banks failed to make amends, they would be
liquidated. The Cabinet's decision covered BLBI after September
1997.

Second, banks receiving BLBI funds after the outbreak of the
monetary crisis in 1997 have allegedly abused the funds. The
police and the Attorney General's Office have investigated the
case. Of course it is not so easy to settle the BLBI case through
the court, because, politically, BI directors just followed
government policy based on presidential directives given in the
form of oral statements.

If the presidential instruction on the BLBI is legitimate and
authentic, the lawsuit of the BLBI case should be suspended and
investigation into the case should be restarted.

There must be no more impression that prosecutors are only
pursuing BI directors in tackling the BLBI case, while BLBI
recipients (bank owners) remain free from political pressure and
legal prosecution. It is necessary to ask experts to examine
whether implementing the BLBI policy amid the monetary crisis is
an appropriate step.

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