Finance Minister Sri Mulyani Indrawati and top executives from Bank Indonesia (BI) and the Deposit Insurance Agency (LPS) have stood up against some of the conclusions of the investigative audit on the Bank Century bailout that placed them in a hot seat.

Mulyani clarified in a joint press conference Tuesday that all the processes pertinent to the Rp 6.7 trillion (US$710 million) bailout came under the law on the LPS instead of the government regulation in-lieu-of-law on the financial safety net that had expired by the end of last year.

This clarification negates a conclusion by the  Supreme Audit Agency (BPK), which argued in its audit that Rp 2.8 trillion by value of the bailout had no legal grounds as it was disbursed after the government regulation in-lieu-of-law expired.

“Since Nov. 21, LPS as an independent agency has handled Bank Century without interference [from the central bank or the finance ministry],” Mulyani said referring to the day the decision to bailout the bank was made.

The BPK investigative audit was commissioned by the House of Representatives, partly over lingering suspicions about political interests that may have motivated the bailout.

Mulyani also refuted a BPK conclusion, which said the decision to hand over Century to the care of LPS was based on less than accurate data on the extent of the crisis  affecting the bank.

She argued that the central bank as monetary and banking authority had provided enough information for the now-defunct Financial System Stability Committee (KSSK) to conclude that leaving Bank Century to collapse would cause a systemic effect throughout the domestic banking industry and jeopardize the whole economy.

Mulyani said by Nov. 20, 2008 the KSSK, whose members included the finance minister and BI officials, had to make a decision on whether to bailout Century using the latest available data, otherwise the systemic effect would be immediately felt.

Acting Governor for BI, Darmin Nasution, added that the audit conclusions were resulted from legal misinterpretations, weak analysis and inaccurate data.

The audit, published Monday, also alleged that BI had failed to provide a measurable definition or benchmark to substantiate the term “systemic threat”. Darmin argued that no country in the world had a perfect definition on what comprised a systemic threat. “Should there  be a clear definition on a bank’s  circumstances that can lead to a systemic threat, then this information could be abused and manipulated by those wanting to receive government bailouts.”

Darmin also countered the BPK’s opinion on the short term financing facility given by BI to Century when the bank’s capital adequacy ratio fell to a negative level on Nov. 14 2008. BPK suspected BI intentionally eased regulations on this to give special treatment to Century.

BPK barely understood these regulatory changes, Darmin said. “It was in fact part of a series of measures made by the central bank and the government to weather the global liquidity crisis and help the banking sector as a whole,” he said.

LPS chief commissioner Rudjito added BPK also made a mistake by concluding the lack of a cap on the amount of capital injection for Century constituted a legal violation.

Rudjito said the LPS law clearly stated the agency, which became the sole shareholder of Century after the bailout, was responsible to improve the bank’s health until it could be sold to the highest bidder, without having to specify a total cost.

Also on Tuesday, a team of economists called for further investigations into the decision-making of the controversial bailout of Bank Century in the light of the Supreme Audit Agency’s (BPK) investigative audit into the rescue scheme.

Economist Ichsanudin Noorsy told a Jakarta press conference that in his opinion the audit provided enough evidence of abuse of power by the decision makers in the Century bailout.

Economist Hendri Saparini from the Econit research institution said that the audit should lead to police investigations, which so far have focused only on the allegations of fraud and irregularities committed by Century’s original shareholders, carrying investigations to an entirely different level. (adh)

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