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Govt launches white paper defending bailout
The Finance Ministry has launched a white paper on the government’s justification of the bailout of Bank Century, in a bid to counter growing public suspicion of possible legal and regulatory violations
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he Finance Ministry has launched a white paper on the government’s justification of the bailout of Bank Century, in a bid to counter growing public suspicion of possible legal and regulatory violations.
Officials denied the paper was launched Tuesday to influence public opinion before Finance Minister Sri Mulyani Indrawati appeared before a House of Representatives inquiry committee into the Century bailout today.
The white paper, titled The Government’s Effort in Preventing and Managing the Crisis, was released in print and digital formats, and conveys the ministry’s perspective of bailing out Century (now renamed Bank Mutiara), secretary-general Mulia P. Nasution said at a press conference.
“This publication is aimed at providing the most objective information [about the bailout] with simplified explanations that can be understood by the public,” he said.
Century received Rp 6.76 trillion (US$716 million) in bailout funds after the government saved the bank, citing fears of a systemic threat to the banking sector amid the global financial crisis. But critics suspected other motives behind the bailout.
The 74-page report has 10 chapters explaining the global financial crisis, the government’s efforts in dealing with the crisis, the roles of the central bank, the Financial System Stability Committee (KSSK) and the Deposit Insurance Corporation (LPS), the chronology of the bailout and the cost of bailout.
In chapter VII, on page 49, the paper states that the LPS would have to spend at least Rp 5.8 trillion if Century collapsed. In the worst case, the state might have had to bear larger costs if the collapse caused side effects similar to the 1997/1998 Asian financial crisis.
“If we hadn’t taken action, the LPS would have had to pay out a larger sum,” said Raden Pardede, who was KSSK secretary when the government decided to carry out the bailout on Nov. 21, 2008.
The report states that as LPS guaranteed savings of up to Rp 2 billion per individual account, the total value of savings that would have to be paid out could have reached Rp 1,000 trillion if a systemic impact to the banking sector occurred.
The book also quoted critics who were supportive at the time.
Bambang Soesatyo, now a Golkar Party legislator and member of the legislature’s special committee investigating the bailout, told news portal kompas.com on April 28, 2008: “When the crisis hits, BI [the central bank] and the government won’t have time to argue. Basic policy must be decided not within days, but hours or even minutes. A delay can destroy the financial market.”
Another committee member, Maruarar Sirait from the Indonesian Democratic Party of Struggle (PDI-P), told the Suara Pembaruan daily on Oct. 13, 2008: “The government should act quickly on the crisis that has affected the capital market and spread to the banking sector.”
