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Cablegate: Indonesia - Old Blbi Cases Stirred Up by Dpr

VZCZCXRO5652
RR RUEHCHI RUEHCN RUEHDT RUEHHM
DE RUEHJA #0357/01 0550759
ZNR UUUUU ZZH
R 240759Z FEB 08
FM AMEMBASSY JAKARTA
TO RUEHC/SECSTATE WASHDC 8069
RUEATRS/DEPT OF TREASURY WASHDC
INFO RUEHZS/ASSOCIATION OF SOUTHEAST ASIAN NATIONS
RUCPDOC/DEPT OF COMMERCE WASHDC
RUEHKO/AMEMBASSY TOKYO 1549
RUEHBJ/AMEMBASSY BEIJING 4737
RUEHBY/AMEMBASSY CANBERRA 2035
RUEHUL/AMEMBASSY SEOUL 4415
RUEAIIA/CIA WASHDC

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

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