Tue, 06 Aug 2002

Bank restructuring key to recovery

Fitri Wulandari, The Jakarta Post, Jakarta

Restructuring the banking sector, the privatization of state- owned enterprises (SOEs) and legal certainty are three key points needed to accelerate Indonesia's economic recovery, according to a local leading economist.

M. Chatib Basri, an economist at the University of Indonesia, said on Monday that returning banks' intermediary function was crucial to revive the country's economy.

"If banks could start giving new loans to industries, then production could run again, boosting economic growth and eventually absorbing millions of the unemployed," Chatib said in an interview with The Jakarta Post.

Chatib made the comment in response to a deliberation of a special decree on economic recovery at the Annual Session of the People's Consultative Assembly.

In apparent support for the New Indonesia Alliance's (PIB) criticism of the draft, Chatib said the draft was too general and lacked focus. PIB has repeatedly stated the draft is too general and does not provide clear guidelines on how to end the crisis.

Indonesian banks are in the process of restructuring to improve their lending capability. However, banks are still reluctant to provide loans to industries that have not performed well in the sluggish economy for fear of incurring non-performing loans.

Non-performing loans have a three-month interest payment period. In the wake of the 1998 economic crisis, many industries failed to pay their debts to banks, which contributed to the collapse of the banking sector.

Meanwhile, Rambe Kamarulzaman, the head of the MPR's Commission B whose task is to deliberate the decree, claimed legislators had focused their attention on unemployment.

"All factions agree that unemployment is the core of the problem because it will affect other areas too," he told reporters after a hearing at the commission.

However, he did not specify how the government should reduce the number of unemployed.

Meanwhile, Chatib said the second important key point in the country's economic recovery was the privatization of SOEs to increase productivity.

"The idea of privatization is to sell idle state assets to get fresh investment so they can be more productive," Chatib said.

Privatization itself is not a popular policy. The government has not been able to meet privatization targets as opposition to sell state assets to foreign investors remains strong.

Of the Rp 6.5 trillion (US$722 million) target expected from the sale of stakes in 25 state enterprises, the government has only managed to rake in Rp 2.1 trillion.

Chatib noted that opposition has sprung up because of misperceptions about privatization.

"Privatization does not aim to tap the state budget but to increase economic performance by increasing the productivity of companies," he added.

Both Rambe and Chatib agreed that another key point that needed to be stressed in the draft decree was legal certainty to ensure firms could run their business.