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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