Central Bank to provide emergency support for banks

The Jakarta Post   |  Fri, 10/10/2008 9:53 PM  |  Business

The central bank is preparing an emergency rescue package in a form of liquidity support should an actual contagion from the global liquidity crisis hit local banks.

Bank Indonesia senior deputy governor told reporters in Jakarta on Friday that the liquidity support would be in a form of various types of high quality commercial papers or treasury bills.

“Previously the accepted commercial papers are either government bonds or the BI certificates, now we expand it in various other high quality assets, although they may not be as liquid,” Miranda said as quoted by state news agency Antara.

Miranda refused to call the liquidity support as a bail out, saying it was merely to restore confidence among banks and maintain a normal flow of capital among them.

To carry out the program, the government may have to issue government regulation in lieu of law and other implementing regulations, meaning the implementation of the initiative would take some time.

“We are currently in the middle of finalizing the draft on the implementing regulation,” she said.

The current provisions in the Central Bank Law that regulate BI commercial papers are not flexible enough to respond to challenges we are currently facing, Miranda.

The government is busy engaging in various interventions to control the financial market, particularly capital investments in the stock market, which saw a 21 percent correction to the Jakarta composite index within this week.

The IDX was closed on Wednesday at 11.06 a.m. and has yet to be reopened. The prolonged suspension saved share prices from further corrections such as what happened in other Asian stock markets, however many analysts warned that the move violates investors right and may ignite more serious consequences. (and)
 

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