Bank liquidation not easy, says Soedradjad

JAKARTA (JP): Liquidating ailing banks is not easy because it involves many parties, Bank Indonesia Governor J. Soedradjad Djiwandono said yesterday.

Speaking before the monthly cabinet meeting on economic affairs the governor reiterated that banks should be liquidated if efforts to bail them out failed.

"If a bank is already in serious trouble, why not simply put it into liquidation," Soedradjad said.

"However, the decision to liquidate a bank cannot be taken hastily," he said.

The Minister of Finance, Mar'ie Muhammad, said Tuesday the government would not hesitate to liquidate banks in a bid to strengthen the banking industry.

He said the government had the right to liquidate banks as stipulated in the government regulation on bank liquidation.

Problem banks, if allowed to continue operating, could hinder the growth of the banking industry, Mar'ie said.

The minister agreed liquidation should be the last resort.

Before liquidating a bank everything must be taken into account, including small depositors' interest, Soedradjad said.

The governor cited the problems involved in liquidating Bank Summa to show the complexity of the liquidating a bank. The bank is still being liquidated.

Bank Summa, which was owned by the Soeryadjaya family, was closed in 1992 because of US$500 million in bad loans.

Soedradjad refused to say how many banks were in danger of being liquidated and rejected rumors the central bank would liquidate 24 banks.

"That's not correct. I don't know where they got that figure," he said.

Indonesia is believed to have about 11 banks in serious financial trouble.

Soedradjad said last December's liquidation ruling was not formulated because of the emergence of financially troubled banks.

It was introduced because there was no ruling governing bank liquidation. Before the new regulation, bank liquidation was based on commercial law from the colonial era which did not recognize depositors or differentiate between small and big depositors. (rid)