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IMF says Indonesia c.bank needs recapitalisation

JAKARTA: The International Monetary Fund(IMF) said on Monday that Indonesia's beleaguered central bank would need some recapitalisation, which would be funded through government bonds.

The IMF's Indonesia representative John Dodsworth, commenting after last week's release of a critical state audit of the central bank, told reporters that the Fund would work with the government to complete a strategy by mid-January to help Bank Indonesia.

He added there was nothing in the audit which would prevent the central bank meeting its daily obligations.

"From everything I know about the audit, I think the corrective actions would include some recapitalisation of Bank Indonesia," Dodsworth said.

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

"The way in which you would recapitalise would be to issue government bonds," he said, noting this would add to the government's already substantial debt burden.

Last Friday, Indonesia's Supreme Audit Agency (BPK) presented its audit to parliament showing that the central bank's finances were so precarious it would probably need to be recapitalised.

It issued a "no opinion" with the audit, saying it did not have enough information to reach a full conclusion. But it added the problems were in part due to mismanagement.

The central bank has criticised the audit, calling some of its findings "hasty" and saying that no agreement had been reached in advance on what criteria to use.

There were concerns in the Jakarta currency market that the issue could put pressure on the rupiah.

Dodsworth said the IMF would work with the Indonesian government on drawing up a plan to help overcome Bank Indonesia's problems.

This would be completed by mid-January, in time for the next letter of intent between Jakarta and the IMF.

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

"The audit does not affect the discharging of obligations by Bank Indonesia," he said.

The central bank's difficulties stem from the issuance of trillions of rupiah in liquidity credits to ailing banks during the height of the country's economic crisis in 1997 and 1998. Most of the banks are unable to repay the loans.-Reuters