Insolvent banks 'should not be liquidated now'<\/p>\n
JAKARTA (JP): Forcing problematic banks to liquidate in the
\nmidst of the ongoing monetary crisis would further deteriorate
\nconfidence in the country's monetary sector and could spark a run
\non banks, the Econit Advisory Group says.<\/p>\n
Econit's director Laksamana Sukardi said yesterday the
\ngovernment should not act hastily in forcing problem banks to
\nliquidate and consolidate because such a measure could create new
\npanic among customers and further damage the banking industry.<\/p>\n
\"It's likely bank liquidation would be done discriminately
\nwith banks owned by politically well-connected businesspeople
\nescaping the axe,\" Laksamana said.<\/p>\n
Such bias would cause uncertainty among people, and might
\nworsen the public's confidence in the banking industry. This
\nwould in turn start a massive bank run where customers would move
\ntheir funds to foreign banks, he said.<\/p>\n
\"The confidence crisis will soon spread to other banks which
\nare perfectly healthy,\" he said.<\/p>\n
Laksamana said the International Monetary Fund (IMF), which
\nwas negotiating with the government on a bailout package to solve
\nthe economic turmoil, might demand the liquidation of unsound
\nbanks as part of a deal.<\/p>\n
But the IMF probably knew very little about the country's
\neconomy and the potential political impact of certain measures if
\ntaken, he said.<\/p>\n
\"This is not the United States, where policies are implemented
\nequally. The risk of partiality on the part of the government is
\nbig,\" he said.<\/p>\n
Citing Thailand as an example, he said the country's banking
\nsector, which had suffered liquidity problems, had to be
\nsuspended because of massive bank runs.<\/p>\n
The independent economic think tank predicts that 1998 will be
\n\"a year of correction\", because there will be a correction in
\nmacro and microeconomic sectors from accumulated policy errors.<\/p>\n
\"The party is over -- now it's time to wash the dishes and pay
\nthe bill,\" Laksamana said.<\/p>\n
Econit's director Rizal Ramli said Indonesia must pay the
\nprice of the currency turmoil with lower economic growth and
\npurchasing power and a wider socioeconomic gap.<\/p>\n
The super-tight monetary policy would affect the money supply
\nnext year and would impede investment growth, Rizal said.<\/p>\n
Indonesia would enter a \"stagflation\" phase where economic
\ngrowth would be slower and inflation would be high, he said.<\/p>\n
The slow rate of economic growth next year would be followed
\nby lower market demand and a higher unemployment rate.<\/p>\n
Rizal said the government must give Bank Indonesia, the
\ncentral bank, full autonomy as in other countries to enable it to
\nfollow the dynamic activities of the money market.<\/p>\n
The monetary council, consisting of the coordinating minister
\nfor economy and finance, the finance minister, the central bank
\ngovernor and the minister\/state secretary, only slowed down the
\ndecision-making process to cope with the financial crisis, he
\nsaid.<\/p>\n
He said people should not expect the International Monetary
\nFund to eliminate graft practices in the country, such as
\ncorruption, which had been widely blamed as one of the factors
\nthat caused a loss of confidence in Indonesia's economy.<\/p>\n
The IMF could not make corruption and collusion disappear,
\nRizal said, adding that it would only be \"wishful thinking\".<\/p>\n
\"Everywhere in the world, collusion and corruption are
\neradicated through domestic reform,\" he said. (das)<\/p>",
"url": "https:\/\/jawawa.id\/newsitem\/insolvent-banks-should-not-be-liquidated-now-1447893297",
"image": ""
},
"sponsor": "Okusi Associates",
"sponsor_url": "https:\/\/okusiassociates.com"
}