Sri Mulyani Defends Century Bailout Necessary to Avoid Collapse in Banking System
[Updated at 7:50 p.m. on Friday, May 2, 2014]
Jakarta. Former Indonesian Finance Minister Sri Mulyani Indrawati defended her decision on the bailout of Bank Century at the height of the global financial crisis almost six years ago, saying that it was done to prevent Indonesia's banking system from collapsing.
"I made the right decision to deal with the crisis at that time," she said, testifying in the trial of former Bank Indonesia deputy governor Budi Mulya in the Century case at the Jakarta Anti-Corruption Court on Friday.
Sri Mulyani added that the decision to release a short-term loan facility (FPJP) of Rp 6.7 trillion ($580 million) was aimed at protecting about Rp 1,700 trillion worth of assets in Indonesia's banking sector and to protect around 65,000 of Bank Century's customers who had savings below Rp 2 billion and 547 customers with savings more than Rp 2 billion in their accounts. Global economies in 2008 were dealing with the fallout from the collapse of Lehman Brothers Holdings amid concern that a credit crunch would send financial markets reeling.
Sri Mulyani served as head of the Financial System Stability Committee (KSSK), an ad hoc body that was created to cushion the impact of the 2008 global financial crisis to Indonesia's financial sector.
"In my capacity as the head of KSSK, I prevented a crisis. It was proven that Indonesia was not hit by the impacts of the global economic crisis as evident in 2009 when Indonesia's economic growth turned out to be one of the best [in the world]," she said.
In her testimony, she also repeated at being upset with the central bank for reporting changes in data concerning Century that led to the bailout.
Sri Mulyani said the central bank kept giving her changes in figures of the capital adequacy ratio (CAR) of Century, and that was partly the reason as to why the bailout fund increased from Rp 632 billion to Rp 6.7 trillion.
"If the figures keep jumping, I might die standing," she said on Friday, repeating her own remarks made during one of the meetings of the KSSK in 2008.
"In my upset state, I might have said that the decision [to bail out Century] should be reviewed," added Sri Mulyani, now a Washington-based managing director of the World Bank.
The figures for the CAR — a measure of financial strength — kept changing and were presented during a series of meetings in 2008 of the KSSK, of which then-central bank governor Boediono —
now the vice president of Indonesia — was serving as one of the members.
Bank Indonesia officials, according to Sri Mulyani, first reported in a KSSK meeting in the early hours of Nov. 21, 2008, that Century's CAR had dropped to around 3 percent, which was why she approved the Rp 632 billion in bailout funds for the bank.
Mulyani said she was given only four-and-a-half hours on that day to decide on whether to approve the bailout scheme. She did, citing concerns of systemic effects on Indonesia's banking industry, although on Friday's hearing she admitted she could have made a better decision had she been given more time.
"A decision had to be taken immediately. We must have made a decision before the bank opened [its office hours] on Friday, November 21, 2008, at 8 a.m.," Sri Mulyani said. "It's true. I always said that if we had had more time for more consideration, it would have been better. But BI said then that there was no time because BI would soon no longer have the authority to hand down short-term funding facilities."
In a meeting on Nov. 24, 2008, Bank Indonesia said Century's CAR fell further, rendering Rp 632 billion ineffective to bring the figure up to the 8 percent threshold set in central bank regulations, although this was later lowered in order to allow emergency funding for Century.
Boediono, who has only been questioned as a witness in the case so far, has also admitted to amending a Bank Indonesia policy on the CAR threshold, although again he said that was to prevent affecting Indonesia's banking industry.
The authority to grant short-term loans to banks was handed over to the Deposit Insurance Agency (LPS) around that time, Boediono has said, adding that the LPS was responsible for the size of the bailout fund increasing to Rp 6.7 trillion.
Budi Mulia, the former deputy governor at the central bank, is on trial for helping to disburse the bailout. He said before the trial that he hoped Sri Mulyani's would "reveal the truth" in the case. He didn't elaborate.
Budi's defense has claimed that the Rp 6.7 trillion loan was given to Century because it was in line with the mandate of Bank Indonesia.
Separately, the Corruption Eradication Commission (KPK) said it was willing to bear Sri Mulyani's transportation cost to Jakarta for the trial.
"Witnesses have the right for a transportation allowance," KPK deputy chief Bambang Widjojanto said on Friday.
Bambang said that KPK is ready to pay for her transportation cost from the United States to Indonesia. "It's based on the terms and condition, if [she] claims [the cost]," Bambang added.
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