Century situation was explosive: VP

From the horse’s mouth: Vice President Boediono, the former Bank Indonesia governor, addresses members of the House of Representatives in Jakarta on Tuesday about his role in the government’s controversial decision to bail out Bank Century last year. Many legislators were unsatisfied with his explanation and said they planned to summon him again. JP/P.J. Leo

Vice President Boediono appeared for the first time Tuesday before a parliamentary inquiry committee into the Bank Century bailout, but left legislators dissatisfied with his responses.

Gayus Lumbuun, from the Indonesian Democratic Party of Struggle (PDI-P), said the House of Representatives’ committee would request another meeting with the former Bank Indonesia governor “in the near future”.

Boediono, who headed up BI from May 2008 to May 2009, indicated in his responses that he might have received incomplete information from subordinates, or that he was unaware of details ahead of the bailout of the ailing bank.

Boediono is considered one of the individuals most responsible for the decision to bail out Century at a cost of Rp 6.76 trillion (US$716 million) in November last year.

However, he reiterated his earlier stance that he believed he had made the right decision, regardless of the quality of information from his subordinates.

“During a crisis, if a bank is allowed to fold, no matter how small, then it could cause a chain reaction in the banking system,” he said.

Therefore BI “had to be flexible” with its regulation on  short-term liquidity support, or FPJP, Boediono said.

“And the regulation changes do not only apply to Bank Century, but to all banks in the country,” he added.

Andi Rakhmad from the Prosperous Justice Party (PKS) asked about Boediono’s agreement to sign a BI regulation on short-term liquidity support that contained a one-day retroactive stipulation.

“It’s unusual to have a regulation with a one-day retroactive stipulation,” Andi said.

He then presented data showing that on Oct. 29, 2008, BI had received an official request from  Century for a line of credit of Rp 1 trillion.

The regulation, which revised the requirement for banks to have a minimum 8 percent capital adequacy ratio (CAR) to only having a positive CAR, was then used as the basis for the central bank to give out credit to Century.

Boediono said changing the CAR threshold was normal in times of crisis, but could not give a clear explanation about the retroactive stipulation.

“As the BI chief, I only received data from my subordinates,” he said.

“Maybe this issue can be addressed to the legal division.”

He added he was not aware of having ever issued an official letter to his subordinates to save Century.

It might have been issued by one of his deputies, Siti Fadjriah, he said. Siti has been recovering from stroke she suffered since May this year.

“It’s possible that Siti’s interpretation of the disposition was based on the general consensus of the Bank Indonesia board of governors against letting any bank collapse during the crisis, due to the possibility of a systemic impact,” he said.  He had “believed” in Siti, Boediono added.

The bailout decision was finally reached at a meeting of the Financial System Stability Committee, chaired by Finance Minister Sri Mulyani Indrawati.

Boediono also reiterated his “four reasons” for saving Century.

“First, there was a massive capital outflow from the region and the country,” he said.

“Second, due to the massive capital outflow, banks in Indonesia suffered a severe drought of liquidity.

“Third, the liquidity drought had caused the inter-bank financial market to slow down.

“And finally, at that time, rumors about banks having difficulties were continuing to grow,” he concluded.

“The prospects were not just terrifying, but also potentially explosive.”