Govt guarantees bank deposits<\/p>\n
JAKARTA (JP): The government announced massive banking reforms
\nyesterday to restore confidence in the system, guaranteeing the
\nembattled banking sector's deposits and debts and allowing
\nforeign ownership in local banks.<\/p>\n
The government established a new government institution, the
\nIndonesian Bank Restructuring Agency (IBRA), to rehabilitate the
\nbanking sector.<\/p>\n
Coinciding with the banking reforms, the government-appointed
\nteam to tackle corporate debt, headed by former minister Radius
\nPrawiro, said it would seek a voluntary, temporary freeze on the
\nservicing of the interest and principal of corporate debt.<\/p>\n
The reform and pause on corporate debt servicing boosted the
\nrupiah to 11,000 against the U.S. dollar yesterday from Monday's
\nclose of 12,250. But currency dealers said the strengthening
\nrupiah was also supported by intervention by Bank Indonesia, the
\ncentral bank.<\/p>\n
Banking analysts have said that market reaction -- after
\nChinese New Year and Moslem Idul Fitri holidays -- would be
\ncritical.<\/p>\n
When announcing the banking reforms, Minister of Finance
\nMar'ie Muhammad said the wave of economic difficulties had been
\ntaking a heavy toll on the health of the banking system.<\/p>\n
Confidence in the country's banking sector had waned, Mar'ie
\nsaid. The public had been withdrawing deposits and foreign banks
\nhad become increasingly reluctant to accept letters of credit
\nissued by Indonesian banks.<\/p>\n
\"This serious situation demands immediate and decisive
\ngovernment action,\" Mar'ie said at a media conference at his
\noffice.<\/p>\n
\"The government has decided that from today it will stand
\nbehind the country's commercial banks and guarantee that
\nobligations to depositors and creditors will be met,\" he said.<\/p>\n
Should any bank encounter difficulties in making payments,
\nMar'ie said, the central bank -- acting on behalf of the
\ngovernment -- would step in, pouring in money to make sure that
\npayments could be made.<\/p>\n
The money used by the central bank to bail out depositors and
\ncreditors will be credited to the government's annual budget in
\ntranches for five years.<\/p>\n
The government would soon issue government bonds to raise
\nfunds needed to bail out bank depositors and creditors and to
\nfinance IBRA's initial operation, Mar'ie said.<\/p>\n
\"This means the public can now be rest assured that their bank
\ndeposits are now completely safe and sound,\" Mar'ie said at the
\nmedia conference, chaired by Widjojo Nitisastro, economic advisor
\nto President Soeharto.<\/p>\n
On hand at yesterday's conference were Bank Indonesia Governor
\nJ. Soedradjad Djiwandono, Minister of Industry and Trade Tunky
\nAriwibowo, Minister\/State Secretary Moerdiono and representatives
\nof the International Monetary Fund (IMF).<\/p>\n
Governor Soedradjad said the guarantee applied equally to
\nstate banks, private banks and joint-venture banks, but not to
\ndepositors and creditors of foreign bank branches.<\/p>\n
The guarantee covers both rupiah and foreign currency claims.
\nBut in case of foreign currency claims, payment of the claims
\nwill be in rupiah at the market exchange rate.<\/p>\n
He said the guarantee would remain in place for at least two
\nyears and the government would give at least six months' notice
\nof the ending of the guarantee, which could be replaced by a
\ndeposit insurance system.<\/p>\n
During the guarantee period, the central bank would impose a
\nceiling on deposit rates to ensure that banks would not offer
\nterms in excess of market terms.<\/p>\n
\"We anticipate that most depositors and creditors will wish to
\nkeep their funds in the Indonesian banks by rolling over maturing
\nclaims, while they will receive payment if they choose to
\nwithdraw those funds,\" Soedradjad said.<\/p>\n
Bailout<\/p>\n
The banking reforms are believed to be part of the massive
\neconomic reform package agreed to by the government and the IMF,
\nwhich has arranged a US$43 billion bailout package.<\/p>\n
IMF Asia-Pacific deputy director Bijan B. Aghevli said the
\ngovernment's guarantee for deposits and debts in the banking
\nsector would cost the equivalent of between 10 percent and 12
\npercent of the country's gross domestic product (GDP).<\/p>\n
Indonesia's GDP was Rp 532.6 trillion in 1996 (about $223.5
\nbillion at the December 1996 rupiah\/dollar exchange rate or $48.4
\nbillion at the current rate).<\/p>\n
\"With this guarantee in place, we expect that confidence in
\nthe banking system will begin to revive soon,\" Aghevli said in a
\nstatement.<\/p>\n
However, a guarantee to bank depositors and creditors would
\nnot be sufficient to restore confidence or make the banking
\nsystem financially healthy, Mar'ie said.<\/p>\n
For that reason, the government established IBRA to take over
\nbanks in financial distress, restructure them and make them
\nhealthy.<\/p>\n
\"In this way, bank by bank, IBRA will build a stronger,
\nhealthier and more competitive banking system,\" Mar'ie said.<\/p>\n
The agency will be headed by Director General of Financial
\nInstitutions Bambang Subiyanto. The initial staff will come from
\nBank Indonesia, the Ministry of Finance and other public and
\nprivate institutions. It will be supported by foreign advisors.<\/p>\n
Soedradjad said the agency would be dissolved once the bank
\nrehabilitation program was completed.<\/p>\n
\"The objective is to restore soundness in the banking system
\nwith the least cost to the government within the constraints we
\nare operating in; thus existing shareholders will be taking on a
\nshare of the burden,\" he said.<\/p>\n
In any case, where public money was involved, Soedradjad said,
\nexisting shareholders would have their equity written down or
\neliminated altogether.<\/p>\n
After restructuring troubled banks, IBRA will then sell them
\nand portfolios it had acquired to the public or foreign parties.<\/p>\n
Soedradjad said the government was eliminating all
\nrestrictions on foreign ownership in Indonesian banks to
\nencourage a fully capitalized banking system.<\/p>\n
To support the banking reforms, Soedradjad said, they would
\nrevise the legal framework for banking operations, including in
\ncontract enforcement, bankruptcy, banking disclosure, getting and
\nrealizing collateral, and financial instruments. (08\/rid)<\/p>\n
Editorial -- Page 4<\/p>", "url": "https:\/\/jawawa.id\/newsitem\/govt-guarantees-bank-deposits-1447893297", "image": "" }, "sponsor": "Okusi Associates", "sponsor_url": "https:\/\/okusiassociates.com" }