Jay Solomon, Jakarta – The Indonesian state is facing $16 billion in potential losses due to the misuse of emergency loans extended to a number of prominent business groups during this nation's financial crisis, a report by the government's Supreme Audit Agency said.

The agency is recommending an investigation of central bank officials and the executives at the business groups for "crimes against the state." The size of the expected losses is also expected to intensify calls for the revision or even cancellation of debt-repayment agreements reached between Jakarta and a number of prominent Indonesian tycoons to cover these debts.

"If the liquidity support had been channeled" according to regulations "such blatant misuses and overlending could have been prevented," said the report, which was presented Friday to Indonesian legislators and law-enforcement officials.

Attorney General Marzuki Darusman said he would soon follow up by conducting a legal probe into the banks, and the acting central bank governor said he would cooperate in an investigation of the alleged financial abuses.

Between late 1997 and the end of last year, Bank Indonesia extended 145 trillion rupiah ($16.82 billion) to 48 commercial banks in an effort to keep them afloat during the country's financial and political crisis. A rattled public had initiated massive runs on politically connected banks, while interest rates soared above 100%.

Many banks found themselves short of the required funds to service their depositors' cash demands. (Roughly 100 trillion rupiah went to the banking arms of just five conglomerates, including the Salim, Gajah Tunggal, and Danamon groups.) But the Supreme Audit Agency's investigation revealed that more than half of the total loans extended by Bank Indonesia – 84.5 trillion rupiah – weren't utilized by the recipients for depositors' insurance, as specified. Instead, they were diverted to other activities such as currency speculation, lending to affiliated businesses and asset acquisition. The rapid extensions of these loans also violated the central bank's regulations; were made against insufficient collateral; and revealed slack oversight by Bank Indonesia officials, the report said.

"The credits were misused by banks and many other credits were extended far in excess of the assets of the bank recipients," the head of the agency's audit team, Bambang Wahyu, told reporters. As a result, the Supreme Audit Agency said the government risked not recovering 138.4 trillion rupiah of these loans.

The audit comes amid a push by some inside President Abdurrahman Wahid's government to rework the debt-payback agreements reached with a number of powerful business groups. The Salim Group's founding family pledged stakes in 108 of its companies to cover 52.7 trillion rupiah in debt to Bank Indonesia; Gajah Tunggal Group, meanwhile, pledged majority stakes in Southeast Asia's largest tire company and the world's largest shrimp farm to meet its obligation of 27.5 trillion rupiah.

Coordinating Economics Minister Kwik Kian Gie has said in recent weeks that these agreements would saddle the state with huge losses due to the sharp depreciation of the value of the assets pledged by these conglomerates. In the case of the Salim Group, Mr. Kwik said Jakarta would likely be hit with a 30 trillion rupiah loss. He said one of the Gajah Tunggal group's pledged assets, shrimp farm PT Dipasena Citra, was now worthless after originally being valued at 20 trillion rupiah, The company denies this revaluation.

The fate of these repayment agreements is now in the hands of the Indonesian parliament. Legislators are scheduled to vote this month on how much of a loss the state should shoulder in relation to bailing out these groups. A number of advisers to Mr. Wahid fear an increasingly hostile parliament could move to sink these deals in light of the disclosure of the loan abuses. This would jeopardize Jakarta's plan to sell off their assets to fund the state's budget.

"If these deals no longer hold, what will we replace them with?" said Sofyan Wanandi, the chairman of Mr. Wahid's business advisory council.