In order to anticipate mass withdrawal of deposit by bank customers (rush) the government has issued several Presidential Decrees providing warranties to all national banks, which will  cover every liabilities owed by national banks to its customers and creditors, either in the form of foreign or domestic currency (“Blanket Guarantee”).

The first Presidential Decree that serves as an umbrella of the Blanket Guarantee is Presidential Decree Number 26 Year 1998 (“PD 26”), enacted by the President on January 26^th, 1998. PD 26 was issued to response the rush caused by the economic turmoil in the 1997-1998 periods. PD 26 consists of only 6 articles. The first article clarifies that the government will warrant every liability of national banks to its customers and creditors. The second article defines national bank as commercial bank established under Indonesian Law. The third article stipulates that the term and conditions for the guarantee will be determined by the minister of finance. Its fourth article tasked the ministry of finance to report the implementation of this facility to the National Economic Council. Article 5 of PD-26 stated that disbursement of the Blanket Guarantee will be conducted by an institution which will be established by the government through a separated Presidential Decree.

Concordant with Article 5 of PD-26, the government then established the Indonesian Bank Restructuring Agency (“IBRA”) through Presidential Decree Number 27 Year 1998  to facilitate the implementation of the Blanket Guarantee.

The fund for such guarantee was generated from the issuance of Government Bond (“SUP”) number SU-004/MK/1999 dated 28 of May 1999 in the amount of 53,780 trillion Rupiahs, stored in the Ministry of Finance Account at the Bank of Indonesia, popularly known as Account Number 502.000002 (“Account 502”). During its implementation, the Blanket Guarantee sparked public controversy as the State Audit Board (“BPK”) had found a misappropriation of Account 502.  In its September 2001 Audit, the BPK discovered that Rp 20,908 trillion  or around 46,69 percent of the fund’s utilization has been misappropriated. The case was later submitted to the police.

On February 2004, Megawati administration modified the Blanket Guarantee program through Presidential Decree Number 17 Year 2004 on the Amendment of PD-26 (“PD-17”). The amendment was made primarily to clarify the administration of the of the Blanket Guarantee program subsequent to the termination of IBRA through  Presidential Decree No. 15 Year 2004. After IBRA is dissolved, the administration of the Blanket Guarantee program is transferred to the Ministry of Finance. PD-17 modifies PD-26 into the following (i) Article 4 on PD-26 is modified so that the Ministry of Finance no longer report to the National Economic Council but directly to the President. Article 5 is modified and a new provision is inserted, in which Art 5(1) clarifies the transfer of authority of Blanket Guarantee program from IBRA to the Ministry of Finance and Art 5(2) stipulates that the Ministry may form a special unit within its department to perform the Blanket Guarantee program. PD-17 declares that all implementing regulation made under PD-26 so long as it contradicts with PD-17 will have binding power.

Recently, the government issued another amendment of PD-26. On October 18^th, 204, the Government issued Presidential Decree Number 95 Year 2004 on the second amendment of PD-26 (“PD-95”). PD-95 inserted a new provision, provision 5A. Art. 5A(1) stipulates that within 6 months after PD-95 is issued until the entry into force of Law Number 24 Year 2004 on Deposit Guarantor Agency (“Law Number 24”) , the government will only pay bank’s liability to other banks and its customers. This would mean that the government excludes the liability to other creditors from its Blanket Guarantee program. Art 5A(2) clarifies that the Blanket Guarantee program will be ceased after Law Number 24 is enforced.

After 24^th of September 2005, the Deposit Guarantor Agency will become effective, rendering the termination of the Government Blanket Guarantee program. For discussion concerning Deposit Guarantor Agency Law, please kindly click the links below. (mma)