The central bank's recent decision to let its Netherlands-based unit Indonesische Overzeese Bank N.V. (Indover) go under was driven by policymakers' fear of future litigation, lawmakers say.

Bank Indonesia (BI) officials were afraid to take the risk of bailing out Indover because it might have resulted in state losses, said Rizal Djalil, a member of the House of Representatives' Commission XI overseeing financial affairs.

"If it comes to potential state losses, nobody wants to get investigated by the law enforcers for graft allegations. I'm sure BI governor Boediono is afraid of putting himself in harm's way just to protect a bank that has no profits at all for us," Rizal said.

BI announced Friday it was unable to execute a planned 545.6 million euro bailout of Indover because it had failed to secure written approval from the House.

In a hearing on Oct. 23 with BI and the Finance Ministry, Commission XI did grant approval for BI to bail out Indover.

However, BI officials reportedly believed the approval contained legal loopholes that could rebound on them, especially if there was potential for a state loss.

The approval was legally not for a bailout approval but for "support in settling the Indover problem". A House plenary session is needed for BI to be able to unload the bailout fund from its strategic reserves.

"A bailout approval should be explicitly referred to in the commission's recommendation before being approved by the plenary session. To come up with that, the commission has to have a vote," commission member Dradjat Wibowo said earlier.

"But all the members were afraid at that time to vote because the bailout could potentially become a state loss, in which case somebody else should be responsible for it. Another thing is that the Indover case involves a potential criminal act," he added.

Sources said lawmakers from the ruling Golkar Party decided to leave the hearing over fear of getting involved in approving the risky bailout despite orders from Golkar chairman Jusuf Kalla to support the rescue plan.

Another factor hampering the rescue attempt is that BI is likely to have difficulty selling the bank after the bailout, as the Jan. 15 deadline for the central bank to divest its business units approaches.

"Should there be no buyers for Indover after the bailout, BI will have to dissolve the bank anyway. So they are thinking why wait for tomorrow if it can be done today," said a source from Commission XI.

BI is concerned Indover's collapse could damage its credibility as a monetary and banking regulatory authority, especially after it issued a "support letter" to reassure creditors that Indover would not be short-lived under BI ownership.

A blow to BI's credibility would have an adverse effect on the country's sovereign and financial institution ratings. There are also fears it could harm export and import financing if foreign banks lose confidence in Indonesia's financial system.

"Indover's collapse won't be the end of the world for us. I don't believe it will affect our financial sector," Rizal said.

"We urged BI to sell the bank a long time ago but they just won't listen. Now they are blaming us for the rescue failure. BI needs to understand that we are not going to wash their dishes." -- JP/Rendi A. Witular

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