Analysts, bankers, businesspeople laud banking reform

JAKARTA (JP): Analyst, bankers and Indonesian businesspeople commended yesterday the government's congenial measure to fortify the country's frail banking sector, indicating such a move was long overdue.

Chairman of the Indonesian Chamber of Commerce and Industry Aburizal Bakrie said the chamber supported the government's pledge to guarantee all depositors and creditors of the country's private, state-owned and joint-venture banks.

"The guarantee will relieve depositors and convince Indonesian banks' foreign counterparts to accept letters of credit issued by our banks again," Aburizal said in a statement.

"The guarantee will also restore people's trust in domestic banks and will prevent bank runs," he said.

In compliance with the International Monetary Fund (IMF)- supported reforms to revive the banking sector, the government disclosed a series of bank-related measures yesterday.

It pledges to guarantee the debt and deposits of all Indonesian banks and will cover any defaults for at least two years, after which the guarantee could be replaced by a deposit insurance system.

Aburizal lauded the deposit insurance system plan, saying it would appease people and herd depositors back to domestic banks instead of foreign banks.

Last year, the closure of 16 ailing private banks -- an unsuccessful attempt to reform the banking sector -- led to a widespread flight of funds from private banks to foreign and state-owned banks.

The country manager of ABN Amro Bank, C.J. de Koning, said yesterday the financial market responded positively to the move as it would protect depositors and creditors.

"I think such a move can restore depositors' confidence in the banking system during this current volatile situation, as they are protected from any potential problem," de Koning said.

Fadjar Limin Sutandi, head of research at Sigma Batara, regretted that the move was introduced after the crisis had further deteriorated the economy.

"But it's okay. The market has long anticipated this," he said.

Moratorium

Fadjar said that what the market needed to know now was how corporate borrowers and creditors cooperate in handling their problems.

"There seems to be a tug-of-war between debtors and creditors in handling their debts," Fadjar said.

At yesterday's announcement, the government said Indonesian corporate borrowers would seek a temporary halt on debt payment servicing before making payments only on interest and eventually on principal.

The country's private debt is estimated to be about US$66 billion.

Economist Mari Pangestu said the measure was aimed at giving borrowers and lenders a chance to negotiate their payment rescheduling, debt rollovers and restructuring.

"It is temporary and not a moratorium," Mari was quoted by Reuters as saying.

"A moratorium is only a last resort," she said.

An executive of soon-to-be-merged Bank Dagang Nasional Indonesia said the debt-payment servicing delay was intended to shore up the rupiah, which had been under pressure because of companies stocking up on dollars to pay offshore debts.

The banker, who requested anonymity, said high demand for dollars could slow down for awhile with the delay.

He said the government seemed to be studying at what rupiah level debt-ridden companies would be able to fulfill their commitments.

"I'm not sure whether this delay will help stabilize the rupiah since many corporations will still fail to service their debts even at a level of Rp 5,000 to the dollar," he said.

"What's needed is a direct government bailout of the debt by transforming some of the private debt into government debt," he said.

The rupiah strengthened to 11,000 to the U.S. dollar yesterday from an opening of 13,500 on the government's announcement of new reform measures and the debt delay. The rupiah was 2,400 in July last year when the currency turmoil first hit the country.

Another banking analyst who asked not to be identified said local tycoons with high foreign debts must be willing to sacrifice their personal wealth in exchange for the government's bailout.

He said the government must make tycoons disclose their personal assets and deposits in overseas banks before it guaranteed their debts.

"If possible, their deposits in overseas banks should be brought back to Indonesia first," he said. (08/aly/das)