In the case of Bank Indonesia, three years after the onset of the crisis, the central
bank and government were still arguing about the distribution of losses, mostly from
funds advanced to Suharto-related banks.30 Bank Indonesia had made discount
window advances to insolvent banks in the amount of Rp144.5 trillion (about
US$13 billion at the current exchange rate) in late 1997 and early 1998. These
advances had been transferred from Bank Indonesia to the government in return for
government bonds, but the government had threatened to withdraw these bonds in
view of questions about the circumstances under which these advances had been
made and the uses to which the funds had been put. A Parliamentary committee
accepted Bank Indonesia’s view that the advances had been government policy and
that in any case the government was responsible for Bank Indonesia’s solvency. Late
last year, Bank Indonesia and the government agreed to share this burden
approximately 1/6– 5/6. Bank Indonesia transferred notes to the government in the
amount of Rp24.5 trillion, the terms of which matched the government bonds.
Notwithstanding recording this amount as an extraordinary loss, Bank Indonesia
30. This account relies on Bank Indonesia (2001, pp 16-17). There is also a much smaller issue regarding
Bank Indonesia’s divestment of its equity stakes in banks and non-bank financial institutions (Bank
Indonesia 2001, p 18)
Setting Monetary Policy in East Asia: Goals, Developments and Institutions 43
reported a profit in 2000. This resolution did not signal an improvement in relations
between the central bank and the government: three days after the agreement was
reached, the government proposed amendments to the central bank law to the
parliament, as discussed above.