State firms take over subsidized loans

JAKARTA (JP): Bank Indonesia (BI) has formally handed over the management of government-sponsored credit to three state financial companies: Bank Rakyat Indonesia (BRI), PT Bank Tabungan Negara (BTN) and Permodalan Nasional Madani (PNM)

BI Governor Sjahril Sabirin said freeing the central bank from the task of managing the subsidized loans program was in line with the 1999 central bank independency law.

"This is one big part of the efforts towards achieving the independency of the central bank as stipulated in the 1999 central bank independency law," he said at the signing ceremony at the central bank building.

The signing ceremony was also attended by the executives of BRI, BTN and PNM.

According to the agreement signed on Monday, BRI will take care of three subsidized loan programs, namely, credit for farming activities (KUT), credit for cooperatives and credit for the members of sugar cane cooperatives.

The total facility of these loans as of Oct. 31, 1999 stood at some Rp 9.6 trillion, according to BI data.

BTN will have the authority to manage the subsidized loan programs on credit for cheap housing facilities, with a total loan facility of some Rp 2.8 trillion as of the same month.

PNM will manage the credit for members of fishermen and poultry husbandry cooperatives and other credit for various weak economic sectors which amounts to some Rp 9.2 trillion in total.

The central bank independency law, ratified in May this year, requires the central bank to end its task of extending soft loans as not to conflict with the central bank's more important role of supervising the banking system.

The law was passed to replace a widely-criticized and ineffective 1968 law and to boost the central bank's independency while freeing it from government intervention during its policy making activities.

According to the new law, BI should focus its duties on: implementing monetary policy, managing and maintaining a fluent payment system and managing and supervising the banking system.

The law also limits the central bank from supporting commercial banks facing liquidity problems.

BI, as the lender of last resort, is limited to providing a maximum 90 days of credit liquidity facilities to commercial banks.

The liquidity credit facilities must be backed 100 percent by high quality and liquid assets such as the central bank's Bank Indonesia promissory note (SBI). (udi)