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JAKARTA, KOMPAS.com Former Bank Indonesia governor, who is now vice

president, Boediono, has prepared a 13 page chronology report. The report was officially

submitted to the Century inquiry committee chief, Idrus Marham, before Boediono gavehis verbal testimony by answering the questions of the committee members, Tuesday, at

the House of Rep. building, Jakarta.

In the report he stated the chronology of the situation encountered by Bank Indonesia,

begun when he started his term on May 22, 2008. He called the report as the"development prior to the Century Bank case fiasco". Boediono's chronology is as

follows:

The first few months of 2008, due to a number of of Bank Indonesia (BI) leaders and

officials being implicated in corruption cases, the situation and morale in BI were

affected, and eventually its performance too. Bluntly, there was a demoralization amongthe BI employees. When there was a change of governor in May 2008, resolution for this

matter was urgent.

I (Boediono) won't state the details of the measures I took during those months, but theycomprised of: (1) improving the internal regulations in BI that tended to be 'corrupt'

according to the suggestion of the Corruption Eradication Commission, (2) replacing and

repositioning of officials, especially in bank supervision, and (3) intensivecommunication between employees to uplift their spirit and morale.

While taking those measures, the most heavy crisis befell the world that culminated in theclosing of the Lehman Brothers in mid-September 2008. This caused chaos and panic in

the global finance market. In various countries the flow of funding and credit was

stopped, and daily transactions and economic activities were disrupted.

In many developing countries, including Indonesia, there was a massive outflow of funds.

The capital outflow in Indonesia was more severe because for other countries in this

region there was a blanket guarantee, while Indonesia didn't have one. The value of USDon November 24, 2008 leaped to Rp. 12,700 per USD. The BI reserves was rapidly

depleted because BI had to provide for at least part of the increasing requirement for

USD in the market. Between August to December, 2008, the BI reserves suffered a heavyblow to hold the currency from going wildly out of control. In the end, the reserves lost

USD 50.6 billion by October 2008.

Because of that fund outflow, the liquidity in the country was low and banks had

difficulties in managing their flow of funds. In October 2008, major state-owned banks

asked for a Rp. 15 trillion liquidity support to cover for their shortages. But the worst

effect was for small to medium scale banks.

The savings from the people or other third parties in small banks were withdrawn since

September 2008, they were moved into bigger banks. Some customers even withdrew

their savings and kept them in safe deposit boxes because they were worried that thebanks would be closed.

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The liquidity problem for middle and small scale banks was exacerbated because one of

their most reliable source of funding, which was the funding between banks, stopped. The

money market between banks was stuck.

Coinciding all that, are signs of decline for bank asset quality that resulted in a decrease

in the capital that we've painstakingly tried to build up since the crisis handling of 1997-1998. The value of marketable securites owned by banks, including government

securities, flopped dramatically, causing much loss and decreasing the capital adequacyratio of banks.

The situation became even more dire because during those few months there were rumorsthat a growing number of banks were having difficulties. The bank customers' trust was

shaken and the situation was more than threatening, it was explosive. Perhaps you may

recall a market analyst from a security firm who was detained by the National Policeunder the charge of spreading malicious rumor through an email that might trigger panic.

Even a small trigger could cause a crisis.