Boediono Backs Bailout of Bank Century

Jakarta (Antara) - Former Bank Indonesia governor Boediono supported the bailout of the ailing Bank Century, which he viewed as a potentially failed bank that would have a systemic effect on the economy. "According to the meeting of the then Financial Sector Stability Committee (KSSK) on November 20, 2008, Bank Century needed Rp632 billion in funds. How can the funds soar to Rp6.7 trillion? Did Bank Indonesia (BI) really provide data about the fund needs," Corruption Eradication Commission (KPK) public prosecutor KMS Roni asked in a session of the anti-corruption court here on Friday. "During the crisis, an estimate in the future to offset liquidity or capital was tentative. But this depended on the future conditions, for instance, how many people will take the money. We didn't know this. Of course, this would change the financial condition. It was the LPS (Deposit Security Institute) and bank supervisor, which knew the fund needs from month to month," Boediono said. Boediono was questioned in the anti-corruption court as a witness in the case against the former deputy Bank Indonesia governor for monetary and foreign exchange management, who had been named as a defendant in a graft case related to the granting of short-term funding facility to the Bank Century and the declaration of the bank as a failed bank with systemic effect. Boediono was a Bank Indonesia governor and a KSSK member when the temporary capital placement was disbursed to Bank Century. The KSSK was the only committee that had the authority to decide whether a failed bank had a systemic effect on the economy. If the bank was considered to have a systemic effect based on data from the Bank Indonesia, the bank would be handed to the LPS to receive a fund injection. At its meeting on early November 21, 2008, the KSSK decided that Bank Century was a failed bank that had a systemic effect on the economy. The meeting also agreed to the amount of funds needs at Rp632 billion. However, the amount of funds disbursed by the LPS to Bank Century reached Rp6.7 trillion until June 2009. "Didn't you ask Muliaman Hadad (then a Bank Indonesia deputy governor) that the amount of funds needed by Bank Century at that time was Rp1.7 trillion but was later changed to Rp632 billion?" Roni asked. "I believed my subordinates, but I am sorry he was my colleague. He was independent. I believe whatever he proposed," he said. Boediono said at that time a crisis had hit the country as indicated by dry bank liquidity as a result of cash outflows, the exchange rate soared as it did in 1997, coupled with a non-performing money market, as banks lost mutual confidence and needed liquidity to meet their own needs. "So there was capital flight in October and in November 2008 as it happened in 1997. An average of Rp3 billion was taken out of Indonesia because we did not apply a blanket guarantee. As a matter of fact, Singapore, Malaysia and Hong Kong had applied it," Boediono said. (*) Reporting by Desca Lidya Natalia