However, the effective impact of the contraction was much lower as Rp 13.3 trillion of the amount constituted a solution to a dispute between the government and Bank Indonesia over BLBI
(such as in the form of abolition of indexation of government debt) which had no effect on M2.
In all, as much as Rp 144.54 trillion was extended in the form of BLBI
to 48 banks.
BII was not a BLBI
recipient and, as such, it was not liquidated nor frozen by the Government.
The improvement was recorded mainly after May 1999 when the bank was still burdened with BLBI
To finance this program, the Government used Bank Indonesia Liquidity Assistance (BLBI
), namely a loan from Bank Indonesia that was used to pay some banks' obligations to third parties.
, supposedly designed to shore up the banking sector has on the contrary sent the ailing sector mired in an endless controversy.
The recapitalization program of BCA which required a sum of Rp 60.87 trillion seems to have managed to lift up the bank from the danger of bankruptcy for having consumed a substantial amount of BLBI
. This is reflected by the improving CAR that is estimated to have reached 42%.
The government has been forced to provide Bank Indonesia Liquidity Assistance (BLBI
) to save these problem banks.
The issue of Bank Indonesia Liquidity Assistance (BLBI
) is now under the spotlight of many not only because the total amount of such assistance is controversially high but also because the issue has become very complicated as a result of alleged irregularities in how the assistance has been distributed and used.
To cope with the collapse of the banking sector, especially to help alleviate banks' liquidity problems, the Government/Monetary Authority provided liquidity assistance called BLBI
(Bank Indonesia Liquidity Credit) as well as introduced a program guaranteeing that the people's funds in banks would be repaid.
For this reason, IBRA has been given authority to process a settlement to the liabililities of the banks' shareholders and to collect the BLBI
(Bank Indonesia Liquidity Assistance) which had been extended to the banks.
According to some information, the liquidation of the 38 banks will cost some Rp 67 trillion, inclusive of the bridging funds from depositors, the interbank obligations, and such obligations to Bank Indonesia as BLBI
(Bank Indonesia Liquidation Assistance), KLBI (Bank Indonesian Liquidation Credit), and others.