Jakarta – The Indonesian government said Tuesday it plans to extend the repayment period for millions of dollars in emergency liquidity extended to banks in 1998 if the bank owners inject additional assets and offer personal guarantees.
"The debtors will be asked to inject additional assets," if the assets they pledged earlier are not enough to cover the emergency liquidity they received, Coordinating Minister for the Economy Rizal Ramli said.
Ramli said the decision to extend the repayment period was based on the results of a meeting on Wednesday of the Financial Policy Review Committee, which he chaired.
"Secondly, we will ask them to hand over personal guarantees, so that if the value of their assets deteriorates in the future, their personal assets would also be handed over as well," Ramli said, speaking after a consultative meeting with the lower house of parliament.
"In return, if they are cooperative, the government would be ready to extend the repayment period of their obligations," Ramli said, without indicating how long the extensions would be. The original settlement agreement – signed by the Indonesian Bank Restructuring Agency (IBRA) and former bank owners in 1998 – gave the owners four years from 1998 to repay their debts. The agreement also called for the bank owners to surrender their assets to repay their debts to the government.
Ramli said the one of the reasons for the extension is that "there has not been much economic activity in the past two years. In addition, there have been no decisions [to improve value] on the assets, hence their value deteriorated."
If there were no more bomb explosions or repeats of the Atambua case, he said, the economy would grow by 6-7 percent annually over the next four years, which should enable the owners to repay their debts, Ramli said.
He was referring to the bomb explosion in the Jakarta Stock Exchange building last Wednesday which left 10 dead, and the killing in the town of Atambua, West Timor of three UN staff.
The two incidents combined to send Jakarta share prices plunging to a 17-month low on Monday, and the killing of the UN staff brought a warning from the World Bank that investor and donor confidence could suffer.
Ramli said however that the final decision on the debt settlement rested with the lower house, adding that the government would hold another consultative meeting with the lower house on October 3-4 to discuss the issue. There was no immediate comment on the plan by IBRA, which was set up to get the banking system back on its feet.
The central bank poured some 144.5 trillion rupiah (17 billion dollars) into commercial banks in liquidity loans in a vain attempt to stop them collapsing at the height of the financial crisis in 1998. But the State Audit Agency has since disclosed that the lion's share of the loans, 138.4 trillion rupiah, was misused.
The audit office said the loans should have been used solely to reimburse depositors during bank runs, but instead recipient banks used them for currency speculation and to lend to affiliated businesses. Forty-two active and retired officials from Bank Indonesia (BI) face questioning over the fraudulent disbursement of of the liquidity loans.