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Monday January 3 2000 INDONESIA: Central bank rejects audit By Joe Leahy in Jakarta

Indonesia's central bank has rejected an audit suggesting that its books may in the red by more than Rp51,000bn rupiah ($7bn) and that it may need to be recapitalised.

The audit into Bank Indonesia, by the Supreme Audit Board, a state agency, and international consultancy KPMG, said there were indications that the central bank had incurred potentially massive losses as a result of weak internal supervision and accounting practices before May last year.

The findings, details of which were released last Friday, came as a blow for Indonesia, which is already struggling with the cost of a Rp643,000bn programme to revive its financial sector.

The Bank Indonesia governor, Sjahril Sabirin, said yesterday that at the centre of the dispute was the Supreme Audit Board's refusal to recognise more than Rp51,000bn in debt that the central bank says it is owed by the government.

The money was part of a total of Rp164,000bn, known as liquidity credit, injected into the banking system by Bank Indonesia on behalf of the government during the country's financial crisis two years ago.

The funds were intended to help banks stem runs on deposits but much of them are believed to have been lost offshore in the form of capital flight. The government earlier last year reimbursed the central bank for the money by issuing bonds.

However, now the Supreme Audit Board is saying that part of the money, Rp51,000bn, was not issued according to the proper procedures, leaving a potential hole in the central bank's balance sheet.

"Bank Indonesia does not agree with the Supreme Audit Board's evaluation of the. . . bank liquidity credit," Mr Sabirin said.

He added that at the height of the financial crisis the central bank was ordered to override the normal procedures for injection of additional money into banks suffering clearing problems.

On Friday, the government reacted to the release of the board's findings by calling for an investigative audit of Bank Indonesia. It also called on parliament to approve the possible recapitalisation of the central bank.

Bank Indonesia officials yesterday also rejected other findings of the audit, which included criticism of the central bank's treatment of foreign exchange transactions and gold reserves.

"The Supreme Audit Board does not understand the process of banking transactions," senior deputy governor, Anwar Nasution, said.

-- Bill P (porterwn@one.net), January 03, 2000

Answers

Interesting time for this to come out. Ruh roh, raggy!

-- Gordon (g_gecko_69@hotmail.com), January 03, 2000.