Central bank woes threaten Indonesia's revival chances Soraya Permatasari
Jakarta, Jan 7: Indonesia's hopes for its first prosperous new year in a long time are likely to be dashed, with investors keeping their distance, unless the government moves fast to sort out its crisis-hit central bank. A government audit shows Bank Indonesia finances are now soprecarious that it needs urgent recapitalisation and President Abdurrahman Wahid has already suggested governor Sjahril Sabirin be sacked. "Expectations of economic recovery and the return of(foreign) funds are the main story this year," ING Barings head of research Laksono Widodo said. "But if the problem drags on it's not impossible the funds will delay their return," he added. Lack of confidence in the central bank could also damage credibility and harm debt negotiations with creditors. Some economists fear that the damning findings by the Supreme Audit Agency (BPK), which presented its report to parliament on New Year's Eve, could be just scratching the surface. Economic analysts said further probes into the bank's finances are vital, warning that the BPK indicates deeper and more complicated problems could be uncovered. "It's not surprising that the bank is technically bankrupt," said Sri Mulyani Indrawati, University of Indonesia's economist and key economic adviser to the president. "The bank lent more than it could afford. Bankruptcy could be expected," she said. ING's Widodo said the cost of bailing out Bank Indonesia could be much higher than expected. The publication of the audit has sparked a flurry of accusations, charging the central bank with incompetence or worse. At issue are the trillions of rupiah - some reports have put it at 51 trillion ($7 billion) - the central bank extended in so-called liquidity credits to help out commercial banks at the height of Indonesia's Financial crisis in 1997 and 1998. Few of the banks are able to repay the money. The government plans to issue bonds to help recapitalise the central bank. The move is backed by the International Monetary Fund which is leading a roughly $45 billion international package to pull Indonesia out of prolonged recession. The IMF and the government are also working on a plan torejuvenate the bank. Economists said the injection of fresh capital could be an additional burden to the state budget, already weighed down by the cost of bailing out commercial banks. Central bank officials deny accusations of mismanagement,saying the loans were emergency help to keep a failing banking system afloat. "In such an emergency, proper credit analysis might not have been fully applicable," said University of Indonesia economist Mohammad Ikham. "But looking at the size of the loans, and how the Bank was under heavy influence of the old regime, such thing could happen. That's why further investigation is a must," he added. Copyright © 1999 Indian Express Newspapers (Bombay) Ltd. All rights reserved throughout the world. feedback at financialexpress.com