Cabinet yet to approve removal of blanket guarantee<\/p>\n
Dadan Wijaksana, The Jakarta Post, Jakarta<\/p>\n
The Cabinet has not yet approved plans by the finance ministry to
\nphase out the costly blanket guarantee program on bank deposits,
\naccording to a senior official at the ministry.<\/p>\n
Ministry director general for financial institutions Darmin
\nNasution was quoted by Antara as saying that more time was needed
\nto thoroughly discuss technical matters to help avoid negative
\nimpacts on the banking sector and the economy.<\/p>\n
The finance ministry was supposed to announce the termination
\nof the blanket guarantee program at the end of July so that the
\nphasing out could start at the end of January next year.<\/p>\n
The government must announce the new policy six months in
\nadvance before the blanket guarantee is lifted.<\/p>\n
The blanket guarantee program was introduced in 1998 to help
\ninstill faltering confidence in the ailing banking sector. Under
\nthe scheme, the government would cover all obligations of failed
\nbanks.<\/p>\n
But the program has been very costly to the already-strained
\nstate budget, and creates \"moral hazards\" among bankers.<\/p>\n
The gradual termination of the blanket guarantee for bank
\ndeposits and claims is aimed at removing moral hazards and
\nminimizing the cost of any bank failures to the state.<\/p>\n
Under the plan, to be implemented in phases, the government
\nguarantee on bank accounts under the category of on-balance sheet
\nand off-balance sheet would be terminated by the end of January.<\/p>\n
This includes debt notes issued by banks, direct loans, letter
\nof credits, standby loans and derivative transactions.<\/p>\n
Third-party funds worth more than Rp 5 billion and interbank
\nloans will no longer be eligible for the blanket guarantee as of
\nAugust 2003.<\/p>\n
The facility will finally be completed in February 2004, when
\nthird party funds above Rp 100 million (around US$11,000) will no
\nlonger be guaranteed by the government, while funds below that
\nlevel will continue to be protected via a deposit insurance
\nfacility, to be established beforehand.<\/p>\n
Some analysts, however, have warned that the termination of
\nthe blanket guarantee could prompt people to put their money in
\nforeign banks as confidence in the local banking industry has yet
\nto fully recover. Overseas banks may also stop doing transactions
\nwith local banks, which in turn could cause trouble to local
\nimporters needing international banking services.<\/p>\n
Darmin said that in addition to domestic worries, the latest
\ndevelopments in the global economy, particularly in the wake of
\nthe accounting scams in the U.S. which have caused havoc on the
\nstock market, has alarmed the government to seek ways to ensure
\nstability in local financial markets.<\/p>\n
\"The latest developments such as in the Enron case and
\nWorldcom make us think of how to maintain the stability in the
\nfinancial sector,\" he said, adding that the ministry was
\ncurrently in talks with the central bank as the regulator of the
\nbanking sector.<\/p>\n
Meanwhile, Bank Indonesia deputy governor Maman Sumantri
\nwarned the government to be extra careful with the timing of the
\nplanned termination of the program, saying it had the potential
\nto ruin domestic and foreign confidence in the country's banking
\nindustry.<\/p>\n
\"Timing is very important here. It can only be done when
\nconfidence from the public, both domestic and international, has
\nbeen restored,\" Maman said.<\/p>\n
\"But, that's difficult to see for now.\"<\/p>", "url": "https:\/\/jawawa.id\/newsitem\/cabinet-yet-to-approve-removal-of-blanket-guarantee-1447893297", "image": "" }, "sponsor": "Okusi Associates", "sponsor_url": "https:\/\/okusiassociates.com" }