Vice President Boediono defended Tuesday the decision to bail out Bank Century, which he said was needed to save the financial system from a systemic threat.
“There were four reasons that I proposed to save Bank Century. First, there was massive capital outflow in the region and the country. Second, due to the massive capital outflow, banks in Indonesia suffered a severe shortage of liquidity,” he told an inquiry at the House of Representatives.
“Third, the poor liquidity caused the inter-bank financial market [PUAB] to slow down. The final reason is that at the time, rumors about troubled banks were widespread. The situation was not only bleak, but also potentially dangerous.”
Boediono was Bank Indonesia governor when the decision to salvage Bank Century was taken in November last year.
The bailout is controversial because Rp 6.76 trillion (US$709 million) was issued to Bank Century, much higher than the estimated Rp 1 trillion.
Legislators said they were not satisfied with Boediono’s answers and felt that there were still a lot of loose ends.
“We will be questioning Boediono again in the near future,” the inquiry committee deputy chairman, Gayus Lumbuun from the Indonesian Democratic Party of Struggle (PDI-P), said.
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