Bank move may cause more worries<\/p>\n
The government has suspended the operation of seven banks and
\ntaken over the management of seven others. Economist Kwik Kian
\nGie discusses the impact of the drastic measure.<\/p>\n
Question: Do you think the latest measure will help restore
\npublic confidence in the banking industry?<\/p>\n
Kwik: Not at all. Such a measure will even rock public
\nconfidence because people are now becoming more aware that the
\nbanking industry is seriously flawed. They have been assured by
\nthe government that their deposits are safe because of its recent
\nguarantee on commercial bank liabilities. But since the
\ngovernment's capability to cope with bank liabilities is limited,
\nthe public remains worried that the government may eventually be
\nforced to convert their deposits into bonds if it can no longer
\nafford to cover the shortfalls of bank liabilities.<\/p>\n
Many depositors, therefore, now prefer to put their money in
\nforeign bank branches even though they are offering lower
\ninterest rates than domestic private banks. Foreign banks can
\nmake big profits just by investing their surplus funds in Bank
\nIndonesia's promissory notes (SBIs) which offer high interest
\nrates (of up to 45 percent).<\/p>\n
Q: But don't you think such a measure is necessary to strengthen
\nthe banking industry?<\/p>\n
K: It was necessary but too late because the measure was taken
\nonly after the central bank had tried to bail out the unhealthy
\nbanks by injecting trillions of rupiah in the form of liquidity
\ncredits. Government officials said that the liquidity credits
\nprovided for the unhealthy banks had totaled only Rp 50 trillion
\n(about US$5.9 billion) but some sources put them at Rp 115
\ntrillion.<\/p>\n
Furthermore, the Indonesian Bank Restructuring Agency (IBRA),
\nan autonomous agency established in late January to help improve
\nthe operations of commercial banks, has become over-burdened
\nbecause it must supervise more than 50 unhealthy banks.<\/p>\n
Q: If the central bank has printed so much money for financing
\nthe liquidity credits, how will it influence inflation, which has
\ndirect consequences for the people?<\/p>\n
K: Very seriously. The central bank's recent move to increase
\ninterest rates on its SBIs to extraordinary levels, said to be
\naimed at reducing rushes on dollars, is also resulting in
\ninflationary pressures.<\/p>\n
Q: Do you see that the government is planning legal actions
\nagainst bank shareholders and executives who have intentionally
\nindulged in unsound banking practices for their own interests?<\/p>\n
K: The authorities are apparently trying to enforce laws
\nselectively, meaning that they will take actions against those
\nwho are politically weak, while leaving others with strong
\npolitical connections untouched. I dare not mention the names of
\nthe politically well connected people, but their bad debts to the
\nproblem banks are huge -- in the trillions of rupiah.<\/p>\n
My bigger concern is that many police personnel and
\nprosecutors are using this opportunity to enrich themselves by
\nextorting money from borrowers allegedly involved in the misuse
\nof bank credits and bank executives allegedly engaged in unsound
\nbanking practices.<\/p>\n
There are actually many more problems that should be addressed
\nin cooperation with the International Monetary Fund (IMF). These
\ninclude mounting bad loans and unprofessional management
\npractices. I wonder whether the authorities will be willing to
\ndisclose these problems, particularly the ones involving bad
\nloans owed by politically important people.<\/p>\n
Q: Can the banking reform measures be carried out thoroughly if
\nall the problems are not disclosed to IMF officials?<\/p>\n
K: The reform can never be comprehensive and complete because
\nmany things are not disclosed to IMF officials. If the IMF has no
\naccess to accurate data on the debt problems, it will surely face
\ndifficulties when it has to report its US$43 billion bailout
\nprogram for Indonesia to its shareholders, particularly the
\nUnited States where laws are strictly enforced.<\/p>\n
Q: What do you think about the 40 other banks which are now under
\nthe direct supervision of IBRA?<\/p>\n
K: Many of them will have to be converted into state banks
\nbecause most of their assets already consist of liquidity funds
\nfrom Bank Indonesia. If the liquidity credits are converted into
\ngovernment equity, the government will be left with a lot of
\npoor-quality banks. This would be contradictory to the
\ngovernment's current program to reduce the number of its
\nbanks. (riz)<\/p>",
"url": "https:\/\/jawawa.id\/newsitem\/bank-move-may-cause-more-worries-1447893297",
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