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.