T

he government and legislators failed on Monday to agree on the use of state funds to salvage banks in times of crisis, forcing a delay to the deliberation of the financial system crisis prevention bill.

Talks on the bill, officially known as the financial system crisis prevention and mitigation bill (PPKSK), will resume on Friday at the House of Representatives.

Monday'€™s deliberation was attended by Finance Minister Bambang Brodjonegoro, Bank Indonesia (BI) Governor Agus Martowardojo, Financial Services Authority (OJK) chairman Muliaman D. Hadad and Deposit Insurance Corporation (LPS) chairman Halim Alamsyah.

The seven-hour meeting was suspended twice for lobbying as arguments emerged between legislators and the government over funding options stipulated on chapter 49 and 50.

Chapter 49 stipulates that several funding options will be made available to assist the LPS in handling any collapsed banks. The funding options include the bank'€™s own capital through a bail-in scheme, BI'€™s assets, the LPS'€™ assets, banking industry contributions through premiums paid to the LPS and, finally, the state budget.

Those options are listed sequentially, meaning that the state budget is a last resort for use only when other options are insufficient to meet the LPS'€™ financing needs.

In such a case, state funds would be disbursed be through the issuance of debt papers (SBN) by the government. BI would purchase the debt papers and the government would then use the proceeds as a loan to the LPS, as stipulated in Chapter 50.

However, the plan to use the state budget immediately drew protests from lawmakers, who insisted that no state funds could be used to save ailing banks, as happened with the contentious Bank Century bailout in 2008.

At that time, the government spent Rp 6.7 trillion (US$514.24 million) of state funds to save the lender, followed by a further Rp 1.25 trillion to improve its capital.

Golkar Party lawmaker Ahmadi Noor Supit, who chairs Commission XI overseeing finance, and Prosperous Justice Party (PKS) lawmaker Ecky Awal Mucharam argued that the use of the state funds, though in the form of loans, resembled a bailout.

'€œWe are clearly against the bailout scheme. We do not want to repeat the practices of the past,'€ Ecky said.

Andreas Susetyo, an Indonesian Democratic Party of Struggle (PDI-P) lawmakers, said the commission also objected to Article 4 of Chapter 41, which stipulates that the government can provide a guarantee for the LPS if it seeks loans elsewhere as additional financing to save a troubled bank.

Andreas said there had to be a limit to such guarantees.

Meanwhile, Bambang maintained the government'€™s stance, saying that loans to the LPS could not be considered a bailout.

'€œBailout funds go to the bank and they are not returned. Funds that we will give to the LPS will be in the form of loans and will be returned, no matter how long it takes.'€

Bambang added that the state budget was a last resort only.

'€œBank owners must be held responsible '€” they'€™re the ones we'€™ll go after if their banks collapse,'€ said Bambang.

No decision was made during the meeting on Monday; talks are scheduled to resume on Friday.