Bank Indonesia Liquidity Aid

The Bank Indonesia Liquidity Aid (BLBI) was a loan scheme that was given by Bank Indonesia that underwent the liquidity problems in aftermath of 1997 Asian financial crisis in Indonesia. The scheme was done after the Indonesian government agreement with the International Monetary Fund in order to solve the economic crisis. In December 1998, BI has granted 147,7 trillion rupiah (US$17.37 billion at the time) to 48 banks.

However, the Audit Board of Indonesia later audited the grant for the 48 banks and found irregularities in the loan process. The irregularities was said to have costed the nation 138 trillion rupiah as of today(US$8.560 billion)

Background

The liqudity aid was announced as an aftermath of the 1997-1998 financial crisis that rocked the entire Southeast Asia. As a result of the crisis, the Indonesian rupiah value in 1997 that were 2,380 rupiah per United States dollar, experienced a high inflation to 17.000 rupiah per US dollar on 22 January 1998, The high inflation has impacted to the high amount of national debt and mass layoffs done by Indonesian companies that were financially affected by the crisis.

To address the soaring rupiah exchange rate caused by the monetary crisis, the government has implemented several policies, including a managed floating exchange rate system and a free floating rupiah exchange rate system. These monetary policies aim to provide greater latitude for monetary control while preserving foreign exchange reserves.

However, this policy, followed by a tight monetary policy to stabilize the rupiah, actually created negative rumors in the banking sector. Rumors circulating among the public, such as foreign exchange losses, clearing losses, kidnapping of bank owners, and the flight of several bankers abroad, led to massive withdrawals of savings by customers.