Banks need info incentives, disincentives<\/p>\n
By Suwiryo Ismail<\/p>\n
JAKARTA (JP): The recent liquidation of 16 insolvent banks is
\none of the worst incidents in the history of the country's
\nmonetary communication during the New Order era.<\/p>\n
The main reason for the incident does not merely stem from the
\nlack of depositors' awareness of information about the banks but,
\nmore significantly, from the imbalance of Indonesia's monetary
\ncommunication system.<\/p>\n
The imbalance of the information system is caused by the
\ncentralization of information distribution, which has no
\norientation to the depositing public. The depositing public is
\ntreated like an entity with no rights of communication or, at
\nleast, rights to receive information.<\/p>\n
According to Law No. 7\/1992 on banking, the rights of
\ncommunication are concentrated with banks (whether they are
\ncreditors or debtors among themselves) as well as Bank Indonesia
\n(the central bank) and the Ministry of Finance, both government
\ninstitutions being authorized to develop and supervise the
\nbanking industry.<\/p>\n
Depositors, therefore, found it difficult to get clear
\ninformation about the conditions of their banks when the monetary
\ndevelopment was in a critical situation prior to the liquidation
\nof the 16 banks early this month. Meanwhile, Bank Indonesia as
\nthe authorized supervisor of commercial banks was not required by
\nlaw to disclose any information which was needed by the
\ndepositors.<\/p>\n
The reticence of the government could be recognized from Bank
\nIndonesia's acknowledgement that the government had not disclosed
\nits plans to liquidate the insolvent banks to avoid a public
\nrush.<\/p>\n
Based on a banking evaluation, as reported by Bank Indonesia's
\ncircular No. 30\/2\/UUPB and Bank Indonesia directors' letter No.
\n30\/11\/KEP\/DIR dated April 30, 1997, a number of banks were
\nunhealthy in terms of their capital, productive assets,
\nmanagement, profitability and liquidity.<\/p>\n
The tight-lipped policy of the government raised further
\nquestions among the public after Minister of Information R.
\nHartono "blocked" information by prohibiting private television
\nstations from broadcasting live a hearing between the House of
\nRepresentatives and Minister of Finance Mar'ie Muhammad. Such an
\nincident has not only hindered the provision of direct
\ninformation but also encouraged the spread of rumors which might
\neven provide misleading information to the public.<\/p>\n
Commercial banks are not required to disclose information on
\nthe health of their operations to the public, because the banking
\nlaw only obligates them to file routine reports to Bank Indonesia
\nand the Ministry of Finance. That is why when commercial banks
\nare blamed for not being transparent, they tend to regard this as
\nbeing the responsibility of the government.<\/p>\n
Such an argument is partly correct because the relationship
\nbetween the public and the government, who is mandated by the
\npublic to supervise commercial banks, has never been clear. Bank
\nIndonesia and the Ministry of Finance even refer to articles 33
\nand 40 of the banking law, which stipulate the secrecy of the
\nbanking business, when they refuse to meet requests for
\ntransparency.<\/p>\n
There is, therefore, a strong need for the review of the law
\nin line with the demand for open availability of information and
\nthe development of ethics in society. Facts have shown that the
\nruling on banking secrecy gives reasons to the central bank and
\nthe Ministry of Finance for not providing information on the
\nhealth of commercial banks.<\/p>\n
Some other articles in the law also restrict the public's
\nopportunities to get information to monitor the way banks manage
\ntheir funds.<\/p>\n
The law actually does not show the reciprocity of interests
\namong the government, commercial banks and the public. Articles
\n41, 42, 43 and 44, for example, give an unlimited mandate to
\nbanks to disclose information about the financial conditions of
\ntheir clients when such information is needed, particularly by
\nthe police, prosecutors and judges.<\/p>\n
When applying for credit, a client is required to disclose all
\ninformation about his or her health, business and family members.
\nBut he has no rights to seek information about the condition of
\nthe bank where he deposits his funds.<\/p>\n
Banks, as stipulated by article 40 of the law, are only
\nrequired to announce their balance sheets and profitability.<\/p>\n
The recent bank liquidations have shown the necessity of
\nrevising the monetary communication system in the country. The
\nlaw, when revised, should allow the public to have access to
\ninformation about the conditions of the banks where they put
\ntheir money, and require the government to establish a
\ncommunication system with the public.<\/p>\n
Thus, Bank Indonesia should develop a mechanism for disclosing
\ninformation about the health of banks.<\/p>\n
Such openness will encourage banks to improve their management
\nand accountability because these practices will deter banks from
\nviolating rules and promote banks operating healthily. Depositors
\nwill also feel safe to have their money managed by the banks they
\ntrust.<\/p>\n
But this will all depend on the political will of the
\ngovernment to improve the transparency of banking information.<\/p>\n
The writer is an executive at the Indonesian Legal Aid
\nInstitute Foundation.<\/p>",
"url": "https:\/\/jawawa.id\/newsitem\/banks-need-info-incentives-disincentives-1447893297",
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"sponsor": "Okusi Associates",
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