The Great State Robbery : The Case of Bank Indonesia Liquidity Support

The introduction of the book is written by DR Sri Edi Swasono. He wrote that the BILS scandal is the biggest bank crime in the world. It is an extraordinary conspiracy of corrupt officials with corruptors who dictates them. It is a global conspiracy to weaken Indonesia and to pave the way for territorial occupation and exploitation of Indonesia's wealth.

Political recruitment was nepotistic and corrupt so national leadership was filled with mediocre individuals. Consequently Indonesian national leadership was weak. Some of them even suffer from inferiority complex. This condition opens the door for outside imperialistic power to rob the state.

Series of suicidal policy started in 1997 when the government accepted IMF pressures to liquidate 16 banks. This policy created uncertainty and panic among the public, so there was rush of fund from banks. Consequently banks balance in Bank Indonesia (central bank) were negative. President Suharto had no choice but to agree on Bank Indonesia to issue special bond for bank balance. But this policy was useless. Once again he was cornered. In the middle of the crisis, the government issued BILS to save banks balance.

The first phase it was issued IDR 144.536 trillion then increased to IDR 164,536 trillion. Next there was President decision no 26/1998 on government guarantee to pay all banks liability as much as IDR 57.779 trillion. After that the government created Indonesian Bank Restructuring Agency (IBRA) to take care of the guarantee. The third phase was when the government agreed to sign Master Settlement and Acquisition Agreement. This is contrary to justice, logic, and Indonesian law system. Release and discharge neglected supremacy of public law to private law. It broke Indonesian law on bank.

In short, Indonesian monetary authority failed to resist IMF pressures which worsen the situation. Their policy is not for Indonesian interest but for theirs.

Marwan Batubara wrote comprehensive analysis of the scandal in the following chapters. First he wrote about the definition and comprehension of BILS. Then about its background and chronology. Next about corruption and misuse behind it. After that about inconsistency of law enforcement. Then about those who must responsible. Next about ways to solve the problem.

Soedradjat Djiwandono, the former governor of bank Indonesia defines BILS as facilities given by BI to keep stability of payment system in the banking sector in order not to jeopardize by mismatch between revenue and withdrawal in banks in short run and the long run. There are discount, foreign exchange and overdraft facilities.

The support were given following the monetary crisis in 1997 in several phases. First during the crisis (September 1997) 54 banks were given IDR 144.536 trillion. Second, from February 1999 to May 1999, there were additional IDR 14.447 trillion. Third, there was the so called "blanket guarantee". On May, 1999 the government issued bond as much as IDR 53.779 trillion. After that there was banking recapitalization program in which the government issued recapitalization bond as much as IDR 431.6 trillion. Including interest, the total amount may reach IDR 1.031 trillion.

But then there were corruption and misuse of BILS. The state auditory agency found abuse and corruption of BILS fund. State loss reached IDR 138.4 trillion or 95.8% in channeleing of fund and IDR 84.82 trillion or 58.7% in the use of fund.

Law enforcement is inconsistent and unfair. Settlement of shareholders' obligation is neglecting and disrespecting the law. Release and discharge is an insult to law supremacy. R&D is Presidential instruction to release BILS debtors if they pay cash 30% of their debts and the other 70% using certificate. The President instructed attorney general to stop the ongoing investigation. R&D is against the Indonesian law. This instruction broke the principle of equality before the law, since it gave freedom to criminals. This is also an intervention of executive power to judicial power.

The mechanism of settlement of shareholders' obligation is out of court settlement. There are three patterns : Master Settlement and Acquisition Agreement, Master Refinancing and Notes Issuance Agreement, and Promissory Notes. MSAA is asset settlement from shareholders to IBRA. The given asset must equal to the debts, without any personal guarantee. MRNIA is asset settlement that is less than the debt with personal guarantee to the same amount as the balance. Promissory notes is an agreement between debtors and IBRA to settle the debtors' obligation with collateral.

The first agreement was signed by finance minister on September21, 1999 but at the time there was no legal base. Later the government passed several regulations but still there was no firm regulations.

Presidential instruction number 8/2002 instructed to give letter of settlement to 21 debtors since they gave their asset. Their debts amount is IDR 96.6 trillion. But later it was found that their asset was fictive. Four banks did not receive letter of settlement. Their debts is IDR 23.8 trillion. Recovery rate from them is only 9.75%.

Up to now there are eight debtors whose settlement was given to IBRA, 30 debtors whose settlement was given to police and attorney general, and there are more people involved. There are 65 suspects but only 16 stand for trial. Out of those sixteen, three are free, two are sentenced to four and eight years, five persons are sentenced for life and five years but they ran abroad. There are eight persons who ran abroad. Based on this fact Marwan came to a conclusion that the attorney general is not serious, not transparent. The verdict is also arousing his suspicion that there is judicial corruption.

There are eighty Bank Indonesia officials who neglected supervision, firm action and preventive actions have been investigated by the attorney general but only three stand for trial. They were sentenced to three years and two and a half years of imprisonment respectively. At the supreme court they were sentenced to one and a half year of imprisonment.

Judicial institutions have produced unjust decisions. They are not serious in handling the BILS cases.

Presidential instruction number 22/2002 is the peak of unjust practices. It focused only on asset recovery and neglected law enforcement. It also broke the principle of equality before the law and separation of power because it intervened the judicial power.

The President instructed coordinating Minister of economics, Minister of law and human rights, Minister of state-owned companies, attorney general, chief of police, and chief of IBRA to take necessary steps to settle shareholders' obligations according to MSAA, MRNIA and promissory notes. Those who have done their obligations were given letter of settlement. For those who are in the process of settlement will be given time to settle their obligations. For those who are not willing to settle their obligations within the time limits will be given firm actions , that will be coordinated among chief of police, chief of IBRA, and attorney general. But the investigations of public law aspects were terminated. They were considered to have done their obligations eventhough they paid in cash only 30% of their debts and would pay the rest by giving their assets. The attorney general then stopped the investigations on ten suspects of the BILS case because they were given letter of setlement from IBRA.

The Presidential instruction is clearly against the 1945 Constitution and MPR (People's Consultative Assembly) decisions, law number 31/1999 on eradication of corruption, law number 8/1981 about public law, law number 5/1991 on attorney general, private law, the principle of equality before the law, and the principle of law certainty.

Bond for recapitalization is a systematic way to steal people's money. This policy is intended to make banks recover from liquidity crisis. But there are several abuses. First abuse is government bond. IMF insisted that the government must give bonds to improve equity and capital adequacy ratio of banks. Kwik Kian Gie said this is illogical because the government who had helped them is given punishment by paying them using bond. Therefore it is an abuse. The government must pay trillions of Rupiah for its interests plus hundreds of trillions of rupiah up to 2021.

Second abuse is, the bond is not revoked eventhough the banks are now in good conditions. Third abuse is, the bond is not revoked when the banks were sold. Fourth abuse is, the sale of banks are not transparent. Fifth abuse is, banks were sold although minimum price is not met.

In 2002/2003 from total domestic debts of 643 trillion IDR, the burden of bond payment is two-thirds of it, and one-fourth of it come from BILS policy. It is a blunder, a heavy burden. In 2004 interest payment was IDR 62.486 trillion, consist of 24.374 trilliopn for foreign loan and 38.111 trillion for domestic loan. Total loan payment was 134.433 trillion IDR. It was 101.69 % of development budget.

Up to May 2004 the government had issued 640 trillion IDR, consequently the government must pay about 40-50 trillion IDR annually.

Who must be responsible ?

The first to be responsible were debtors of BILS. Then former President Suharto and his ministers. Next are officials of bank Indonesia. After that IBRA. Then former President Megawati and his minsters for giving release and discharge to debtors. Then IMF for dictating Indonesia to take suicidal policies such as liquidating banks, taking tight money policy, privatizing state-owned companies, and recapitalizing banks. In short policies dictated by IMF are not for Indonesian interests but for their own.

Crime of debtors.

There are many ways of manipulation and abuse of BILS. First they manipulated financial report so that it is difficult to know the real conditions of their banks. The most common manipulation is by manipulating transactions to avoid legal lending limit. Second is by using BILS fund for the interests of their business group. They gave 20.36 trillions to their affiliates. Then there is suspicions that they bought US dollars so they weaken rupiah. Then they also marked up the amount of rushed funds. They also manipulated their debts into dollars so they can claimed the government to pay their debts based on Frankfurt Agreement. They took advantage of the high BI rate by withdrawing their funds from abroad to be deposited. This investment is very profitable.

In the settlement phase they used fake and undervalue assets. The total collateral they gave to IBRA was said to be IDR 132.77 rillion but the commercial avlue is only IDr 12.29 trillion. It means that the mark up value is IDR 120.5 trillion. In reality the take over of asset is deceptive because teh management of those asets are still in their hands.

Role of Bank Indonesia and IBRA.

Policies of BI are temporary, individual, subjective and erratic. They are not firm in law enforcement. Their policies are not transparent. BI gave BILS to banks that broke banking law. Besides that, BI officials gave 100 billion IDR to YPPI foundation that later gave it to some member of parliament to amend BI law.

IBRA did not apply principle of prudent in managing assets of debtors. They were wrong in the asset valuation, when they gave trillions of government bond to banks without appropriate control to make sure that they will return, and when they sold the assets of debtors in very low price. Their performance is poor in settlement of debtors's obligation, settlement of banking obligations such as non performing loans, and in divestig government shares in banks to return state money.

Role of IMF in BILS case.

On October 1997 IMF agreed to give US $ 9.709 billion to teh government of Indonesia on several conditions. The government must implement economic reform policies like privatization, increasing subsidy, fianncial liberalization, and banking rewform. IMF intervention in Indonesian economic policy is not only in financial sector but also in other sectors such as asset recovery, privatization of state-owned companies, investment and deregulation and foreign trade, even in social security, decentralization, and law reform and environment. The consequence is hard-Indonesian economy was decreasing. Tight money policy resulted in economic stagnation. The liquidation of sixteen banks made public panic and rushed their funds from banks. Consequently banks suffered from liquidity crisis and needed support. IMF, World Bank and ADB pressed the government to take over companies' foreign debts as much as US $ 1,099 billion or approximately IDR 9.8 trillions. This policy resulted in the weakening of Rupiah and further weaken the ability of private sector to pay their foreign debts.

The worst policy dictated by IMF is when the government issued bonds to recapitalize banks. IMF stated that banks needed capital adequacy ratio of at least 8% to stay healthy. The government then gave IDR 431.6 trillion plus interest that must be paid annually. The total amount of interests, if paid on time, will be IDR 600 trillion. So the total amount will be IDR 1.031 trillion. So the state must bear very heavy burden. The state budget must pay about 40-50 trillion IDR each year.

IMF also forced the government to sell recapitalized banks. On March 2002, 51% of government shares in BCA was sold for IDR 5 trillion. At the time BCA had recapitalization bond as much as IDR 60.9 trillion. By paying 5 trillion the buyer can have 9 trillion annually from interest.

In the closing chapter Marwan Batubara appeals the government, the parliament, and judicial institutions to take ten steps.

1. Settle BILS case according to law in an objective and just process that is pro public intersts.

2. Cancel presidential instruction no 8/2002 about release and discharge and review all unjust decisions about BILS case.

3. Ask IMF responsibility for pushing the Indonesian government during crisis to take policies that are detrimental to Indonesian economy.

4. Create breakthrough to quicken the settlement process of BILS case by creating ad hoc tribunal.

5. Attorney general should resolve the BILS case and force the actors to stand trial.

6. Take over all asset of debtors who have not paid their debts.

7. Investigate thoroughly all government officials involved in the BILS.

8. Try to recover the state money given through BILS case.

9. Stop subsidy to banking sector through interest of recapitalization bond.

10. Stop selling government shares in recapitalized banks, until the government managed to revoke all recapitalization bonds in banks.

The final chapter of the book is written by several experts like Kwik Kian Gie, Aviliani, Frans Herndra Winata, Fadhil Hasan and Hendri Saparini.

The BILS case remain the hottest issue in Indonesian politics today.