The Ministry of Finance has recently issued Regulation No. 17/PMK.05/2005 Year 2005 on Conditions, Procedures, and Implementing Provisions of Government Guarantees for the Obligations of General Banks (the “Regulation”). The Regulation will serve as an implementing provision for Presidential Decree No. 95 Year 2004 Concerning the second amendment of Presidential Decree Number 26 Year 1998 on Blanket Guarantee.

The Regulation defines Guarantee Program as the government’s program to guarantee General Bank’s payment toward their customers and creditors. Under the Regulation, savings, deposits, floating rate notes, medium term notes, letters of credit, and currency swaps were among those covered by the government. Other bank’s obligation not listed in the Regulation will not be covered by the government.  Affiliated transactions conducted by individual or legal entity owning 10% (or more) shares in the Bank is also exempted from the guarantee program. Transactions conducted by controlling shareholders, members of the bank’s commissioners, members of the bank’s board of directors and families of BoD and BoCs are also exempted from the Guarantee Program.

General Banks who had not obtained membership of the program may submit its application in written. The application must contained a copy of the Bank’s article of association, copy of id cards of individuals signing the application and paying membership fee of IDR 30 million.

Members of the guarantee program must submit statement letters from their BoCs, BoDs, shareholders owning 10% of shares clarifying their intention and approval in following the government’s terms and condition for the guarantee program.

The Ministry of Finance will establish the Government Guarantee Management Unit (UP3) to manage the government guarantees against obligations owed by general banks. All participating banks in the guarantee program must notify UP3 of all obligations that is equal with or exceed IDR 10 billion. Failure to comply with this provision will be sanctioned by a fine of IDR 1 million per day that the bank is late in submitting this data.

The guarantee program is scheduled to finish on 22 September 2005. All legitimate claims against the program will be resolved by the MoF after this date. (mma)