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IMF to work with Indonesia on helping central bank

JAKARTA: The IMF said on Monday Indonesia's beleagured central bank would need some recapitalisation, but that there was nothing in a critical audit of the bank which would prevent it from meeting its daily obligations

Bank Indonesia itself said separately that the country's overseas bonds and bank bailout scheme could be hurt by the recent state audit, which had found the bank's finances so problematic it might have to be recapitalised.

The central bank also said the audit news could push up the cost of financing for Indonesian firms raising funds overseas and might raise concern over the bank's ability to guarantee trade financing.

Finance Minister Bambang Sudibyo had said on Friday that the International Monetary Fund had agreed to a government proposal to recapitalise the bank.

The IMF is leading a more than $45 billion interational rescue package for Indonesia. It is due to sign its latest letter of intent with Jakarta this month.

Sudibyo said the recapitalisation would happen soon if parliament approved. He also said the central bank would soon conduct comprehensive corrective action regarding its personnel, organisation, internal supervision, systems and the supervision of banks. IMF Indonesia representative John Dodsworth told reporters on Monday that: "From everything I know about the audit, I think the corrective actions would include some recapitalisation of Bank Indonesia," which would be funded through government bonds.

"The exact amount, however, needs further review," he said.

The IMF would work with the government to complete a strategy by mid-January to help Bank Indonesia, Dodsworth said.

He said the audit had not found anything that would prevent Bank Indonesia meeting its daily obligations.

The audit by the Supreme Audit Agency (BPK) was released to parliament on Friday.

AUDIT NEWS COULD HIT YANKEE BOND PRICES: Commenting on the audit's possible impact, Bank Indonesia deputy governor Miranda Goeltom told reporters earlier that: "Bank Indonesia issued (a) yankee bond overseas, (the news) could hurt its prices or...could push up the bond rates which are now used as benchmark for corporates (fund raising) overseas".

She said the yankee bonds that could be affected amounted to around $400 million, apart from other bonds issued overseas by Indonesian corporates.

Goeltom said the news had not had any significant immediate impact because financial markets were still slow due to the holiday mood, but it would start to have a more meaningful effect next week when the markets are active again.

The central bank yankee bond rate was still 480 basis points above US treasury bonds, she added.

"Let's see. It might get hurt," Goeltom said.

Publication of the audit "could have an impact on the credibility of Bank Indonesia in guaranteeing trade finance such as in opening L/C," she said.

The results of the audit-whose conclusions the bank has said were hastily reached by auditors it considered inexperienced in dealing with a central bank-could also harm the country's bank bailout programme, Goeltom said.

"If we are in a position in which our balance sheet is not good, it is not possible for Bank Indonesia to buy the government bonds."

CENTRAL BANK ROLE CRITICAL IN BACKING BAILOUT BONDS: Under a bank bailout scheme, the government issued hundreds of trillions of rupiah bonds to recapitalise the country's troubled banks. The central bank would act as a buyer before the bonds were sold in the secondary market.

The general audit looked at the central bank's position as of May 1999 when it officially became independent of the government. Before May, the central bank was audited by the government internal audit agency BPKP.

The BPK is an autonomous agency free from direct government control, unlike BPKP, which is a government-run audit agency.

The audit, carried out from September 1 to December 7, blamed the bank's problems in part on poor management.-Reuters