INDONESIA - OLD BLBI CASES STIRRED UP BY DPR

UNCLAS SECTION 01 OF 02 JAKARTA 000357 SIPDIS SENSITIVE SIPDIS DEPT FOR EAP/MTS AND EB/IFD/OMA TREASURY FOR IA-SETH SEARLS SINGAPORE FOR SUSAN BAKER COMMERCE FOR 4430-BERLINGUETTE DEPARTMENT PASS FEDERAL RESERVE SAN FRANCISCO FOR FINEMAN DEPARTMENT PASS EXIM BANK DOJ/OPDAT FOR JOHNSON/LEHMANN/ALEXANDRE DOJ/AFMLS FOR SAMUEL E.O. 12598: N/A TAGS: EFIN EINV ECON PGOV PINR ID SUBJECT: INDONESIA - OLD BLBI CASES STIRRED UP BY DPR ¶1. (SBU) Summary: Members of Parliament have been dredging up ten-year old cases connected to abuse of Bank Indonesia Liquidity Assistance (BLBI) funds related to the 1997/98 financial crisis rescue of depositors in distressed commercial banks. It is not clear why the Parliament (DPR) has been agitating about this recently, and many contacts view it as a way to embarrass President Yudhoyono (SBY) or to distract attention from the DPR's own poor performance. End Summary. BLBI: Financial Crisis' Unfinished Business -------------- ¶2. (SBU) Lawmakers are resurrecting complaints about misuse of BLBI funds. This refers to emergency liquidity credits extended by Bank Indonesia to meet demands for withdrawals by depositors in commercial banks during the 1997-98 financial crisis. Of the Rp 144.5 trillion ($15.7 billion) BLBI extended after 1997, Rp 51.7 trillion ($5.6 billion) ended up with one of the more than 100 collapsed banks, who defaulted on repayment to BI. Some BLBI funds were stolen by bank owners who fled, never making it into the hands of depositors. Note: Under President Megawati, and to provide some protection to BLBI borrowers who were cooperative in returning and recovering funds, a 2002 Presidential Instruction converted BLBI cases from criminal to civil cases. End Note. ¶3. (U) According to Finance Minister Sri Mulyani's recent statements to the press, the GOI and the Parliament's Commission XI agreed that the total debt of seven major BLBI borrowers was Rp 2.3 trillion ($250.4 milion),based on a Supreme Audit Board (BPK) investigation. According to the Parliament's BLBI inquiry team, those who failed to repay funds (BLBI credits plus other assistance provided in connection with policies then adopted to restructure national banks) cost the state Rp 702.5 trillion ($76.5 billion). Thus $76.5 billion is the estimate of the total of BLBI credits and other restructuring funds. While the BLBI scheme was flawed, it did indeed assist many depositors to recover their money. However, some of the borrowers misused the funds, including bank owners and managers who ran off with the money instead of re-paying depositors. Several former bankers who fled Indonesia in connection with BLBI funds abuse are on the Attorney General's "Most Corrupt" List. Table 1: Breakdown of BLBI Cost to GOI -------------- Scheme Rp trillion -------------- BLBI 144.5 Banking recapitalization bonds 425.5 Blanket guarantee cost 73.8 Bailout funds 4.9 BI escrow account 53.8 -------------- TOTAL 702.5 BLBI Plays Well Domestically for DPR -------------- ¶4. (U) President Yudhoyono has publicly called for speeding up the civil settlement of BLBI cases currently being handled by the Attorney General's Office (AGO),focusing in particular on uncooperative parties. According to Attorney General Hendarman Supandji, there are 34 outstanding BLBI cases: twenty are being handled by the Ministry of Finance (MOF),seven by the Indonesian National Police (INP) and seven by the AGO. On February 11, House Speaker Agung Laksono insisted to the media that the DPR was committed to resolving the BLBI cases. "We are serious about this. The AGO should take whatever mechanism required to regain what belongs to the state." A Fine Distraction? -------------- ¶5. (SBU) Several DPR members are aggressively pursuing BLBI cases, or at least stating so to the media. Their stated purpose is to JAKARTA 00000357 002 OF 002 recover funds, but there appear to be ulterior motives to embarrass the President and steer attention away from Parliamentary failings. One longtime expat consultant said that the DPR is under a lot of pressure for its failure to perform, pass needed legislation and deliver results: BLBI is a fine distraction with easy targets -- wealthy former bankers. The Parliament suggested three possible actions should the government fail to provide satisfactory answers on BLBI: --Begin impeachment proceedings against the President; --Investigate the cases further; --Form a special team to monitor the government's work to recover BLBI funds if the House was satisfied with the government's answers. ¶6. (SBU) Some of our contacts noted that the DPR seeks to undermine SBY with its current agitation on the ten-year-old BLBI cases. The DPR's interest in playing up the BLBI cases plays well domestically for many parties in the lead up to the 2009 elections. Although bringing BLBI borrowers to justice is difficult and trails are cold, the DPR can raise its own profile by speaking publicly about it. Some of the BLBI borrowers are Chinese-Indonesian, often easy targets in Indonesia. HUME