Special body to implement bank guarantee program
Special body to implement bank guarantee program
The Jakarta Post, Jakarta
The government plans to set up a special body within the finance
ministry to be in charge in the implementation of the banking
guarantee program, which is currently being undertaken by the
Indonesian Bank Restructuring Agency (IBRA), an official has
said.
Calling it the Banking Guarantee Implementation Unit (UP3),
the body will take over the role of IBRA when it is expected to
be closed as early as September, pending the planned
establishment of a deposit guarantee agency (LPS), Kontan weekly
reported.
"When IBRA's role ends, its tasks to undertake the banking
guarantee program will be shifted to the UP3," Firdaus Djaelani,
a director within the finance ministry which also heads a team to
establish LPS, was quoted by the economic weekly as saying.
No time table is available, but he did say that the setting up
of the new body was part of the government's plan to gradually
terminate the costly blanket guarantee for bank deposits and
other liabilities.
As reported earlier, the government planned to phase out the
guarantee scheme, especially for big depositors, while for the
small depositors, it will continue to protect them via a new
deposit insurance scheme by establishing the LPS.
The blanket guarantee scheme itself was first introduced in
1998 to help revive confidence in the ailing banking sector,
badly hurt by the devastating financial crisis in 1997-98.
Under the scheme, if a bank is shut down, the government would
cover all of the banks' obligations including their third party
liabilities. The policy was also meant to avoid a widespread
panic when the government had to close down banks. It was the
absence of such a scheme that was believed to have caused the
massive capital fight during the early period of the crisis when
the government had to close down 16 banks.
But, in a bid to help remove "moral hazards" among bankers and
minimize the cost of any bank failures to the state, the
government had come up with the idea of gradually terminating the
program.
The phasing out program is planned to be completed sometime in
2004 or 2005, when the banks' third party funds above Rp 200
million will no longer be covered by the government. LPS should
be established by then to guarantee deposits of less than Rp 200
million.
However, Firdaus said, as the establishment of LPS could take
a long time -- because the law for the legal basis of the plan is
still being prepared --- and at the same time IBRA, which
currently undertakes the existing program, will soon expire, the
new body such as the UP3 would be needed to take over IBRA's
roles.
The unit would only need a ministerial decree as its legal
basis.
Due to its temporary nature, UP3 would only take over part of
the current roles of IBRA in executing the guarantee program,
especially those related to administrative tasks.
The most important task of the UP3 will be in managing and
collecting premium fees from national banks participating in the
blanket guarantee program, which is amounting to 0.25 percent of
each of their third party liabilities.
With the country's total third party funds standing more than
Rp 900 trillion currently, UP3 could collect the annual premium
fees amounting to close to Rp 2 trillion.