Bank restructuring key to economic reform: Fuad
Bank restructuring key to economic reform: Fuad
UNITED NATIONS (Reuters): East Asian banks must reform themselves to better channel international financial resources to productive use, Indonesia's Finance Minister Fuad Bawazier said on Saturday.
"This can only happen if our financial institutions are managed such that allocative decisions are made on the basis of economic merit," Bawazier told Saturday's session of the UN Economic and Social Council (ECOSOC).
The banks' financial viability was endangered by investments in activities that showed low returns, he said.
"And this weakening of the financial sector from within begins to erode external confidence and financial inflows can quickly turn to outflows," he said.
Such outflows in recent months have helped cripple economies throughout Asia.
Fitch IBCA, the international rating agency, said on Friday that Indonesia's banking system was in deep crisis and that steps being taken were too late to avoid an asset quality disaster.
"The banking reforms that Indonesia agreed with the International Monetary Fund (IMF) will significantly improve the banking system but their benefits will only be realized in the longer term," the agency said.
The rare Saturday session at the UN followed the spring meeting of the IMF in Washington. The IMF and World Bank are considered crucial to any Asian economic comeback.
On Friday, Bawazier said he expected the IMF to release its next loan tranche to his country at the end of April.
Unrest in Indonesia intensified across the country last week, affecting the country's financial markets which fell on Friday despite government promises to get tough on student protesters and further signs of commitment to economic reforms.
Thousands of students held rallies in the city of Surabaya on Friday calling on Indonesian President Soeharto to step down, while protesters marched through the capital Jakarta shouting "Reform or Revolution."
Bawazier said money flowed too freely into markets in the boom years that preceded the current crisis.
"The inflows were excessive because they often were invested poorly," he said.
"These same enthusiastic investors who poured money into Asia rapidly withdrew their funds when weakness was exposed," he said. "It was this rapid withdrawal that exacerbated the basic financial sector weaknesses."
Indonesian officials and foreign lenders ended preliminary talks in New York on Thursday after agreeing to a set of principles inspired by Mexico's Ficorca program of the early 1980s.
Participants in the meetings said progress had been made toward easing Indonesia's corporate debt burden.
The talks will reconvene next month.
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