State firms take over subsidized loans

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)