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Indonesia: Lawmakers question legal basis for bailout of banks

Updated On: Sep 07, 2009

29 Indonesian lawmakers have made a desperate attempt to challenge the government’s “imprudent handling” of the Indonesian Century Bank’s receipt of trillions of rupiah in bailout funds.

The lawmakers signed a petition letter on Friday demanding a thorough investigation into the case, which they deemed similar to the situation faced by the Bank Indonesia Liquidity Assistance (BLBI) after the 1998 Asian financial crisis.

In the BLBI scandal, the Supreme Audit Agency (BPK) eventually ruled that Rp 144.7 trillion (US$14.3 billion) were inappropriately disbursed, and revolved around state funds that were disbursed to 48 insolvent banks during the Asian financial crisis.

The lawmakers say the government regulation that formed the basis for government disbursement of bailout funds is no longer valid as the House of Representatives refused to endorse it as a law on December 18, 2009. Thus, the lawmakers argue that the subsequent bailouts after the designated date had no legal basis.

The government has so far injected capital into the troubled bank four times to keep it afloat: Rp 2.77 trillion on November 23 and Rp 2.2 trillion on December 5 in 2008, and Rp 1.15 trillion on February 3 and Rp 630 billion on July 21 in 2009.

The petition letter — sent to the House of Representatives chairpersons, Bank Indonesia executives, the Finance Ministry and the media — points to several other instances of alleged imprudent handling, in addition to questioning the government’s legal basis for the bailout.
Another indication of the government's imprudent handling, the lawmakers say, is the value of the bailout, which more than quadrupled the initial Rp 1.3 trillion bailout figure proposed to lawmakers late last year.

The lawmakers accuse the government and the central bank of keeping the growing cost of the bailout hidden until it was "accidentally" revealed on August 27, 2009, more than a month after the final cash injection was carried out.

The central bank argued bailouts carried out after December 18, 2008, were based on a memorandum of understanding on a “protocol for assisting ailing banks” circulated by Bank Indonesia (BI) and the Finance Ministry.

The Bank Indonesia Law and the Deposit Insurance Agency (LPS) Law were the legal foundations for the MoU, the central bank said.

BI senior deputy governor Darmin S. Nasution said the MoU was essential in filling a legal gap as the government and lawmakers were still in the process of drafting the financial system's safety net bill.

Finance Minister Sri Mulyani Indrawati also said that the bailout funds were taken from the LPS coffers, not from the state budget, and thus did not require House approval.

Although a petition letter signed by a minimum of 13 lawmakers is sufficient to start a full fledged House inquiry into any matter, this move by lawmakers is seen as primarily symbolic in nature, as their legislative term is due to end on September 30, 2009.

Nonetheless, the lawmakers have urged the incoming term of legislators to look at this issue seriously, in order to examine whether the misappropriation of funds had occurred in the aftermath of the global financial crisis.

Source:

The Jakarta Post, Lawmakers take final 'toothless' shot at justice, 5th September 2009, http://www.thejakartapost.com/news/2009/09/05/lawmakers-take-final-039to...

The Jakarta Post, Why is `systemic threat' a big issue in the bailout debacle?, 4th September 2009, 
http://www.thejakartapost.com/news/2009/09/04/why-systemic-threat039-a-b...

The Jakarta Post, Timeline of Century fiasco, 4th September 2009, http://www.thejakartapost.com/news/2009/09/04/timeline-century-fiasco.ht...







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