Indonesian Audit Agency Blames Central Bank for Century Bailout

The Supreme Audit Agency said in a report released on Monday that as much as 40 percent of the Rp 6.7 trillion ($710.2 million) used to bail out the former Bank Century was effectively illegal, and cited other serious wrongdoings that needed to be investigated by law enforcement agencies. In a damning report that has been eagerly awaited for months, the agency, also known as the BPK, placed most of the blame surrounding the controversial bailout on Bank Indonesia. It said the central bank gave the government inaccurate information about Bank Century’s financial status during the critical days in November 2008 when the decision was made to save the bank. The central bank was also accused of failing to properly monitor Bank Century from its inception in 2004. The BPK report also said $18 million of government’s bailout funds were transferred into the accounts of a Bank Century customer identified as “BS” and believed to be Boedi Sampoerna, a member of the powerful Sampoerna business family and an ally of the president. “The BPK has no powers of legal enforcement, so a number of likely breaches of law found in this investigation still need further investigation by law enforcement agencies,” BPK Chairman Hadi Purnomo said. The report said Rp 2.8 trillion of the money injected into the bank had no “legal basis” because the funds were disbursed after the House of Representatives had rejected an emergency government regulation creating the Financial Sector Safety Net. Regarding the decision to bail out the bank, the report blamed the central bank and members of the Financial System Stability Committee (KSSK), comprised of senior officials from the Ministry of Finance and central bank. The report stated that the determination that Bank Century was a “failing bank which posed a systemic threat” to the country’s financial system was not based on measurable criteria, but on quick, “subjective” judgements. Finance Minister Sri Mulyani Indrawati, who played a key role in the bailout, said she would hold a press conference today to respond to the report. Vice President Boediono, who was central bank governor at the time, has also come under scrutiny. A recording of the meeting in which the decision was made indicated he pushed for the bailout. Bank Indonesia on Monday issued a statement saying it had “been cooperative and supported” the audit, but said the report did not consider the “atmosphere of serious crisis” when the bailout decision was made, referring to the global financial crisis. Furthermore, the KSSK’s order to the Deposit Insurance Agency (LPS) to bail out the bank without specifying its cost was also unlawful, the report said, as was the LPS’s failure to not attempt an initial estimate of the total financial cost to the state. The report also faulted BI for allowing a total of Rp 938.65 billion in customers’ funds to leave Bank Century after the institution was placed under “special supervision.”

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