Banks 'closed by proper procedures'

Banks 'closed by proper procedures'

JAKARTA (JP): The government will not review the closure of 16
insolvent banks because the measure was taken according to proper
procedures, Minister of Finance Mar'ie Muhammad asserted
yesterday.

Mar'ie, who delivered a government statement before the House
of Representatives' plenary session on the recent reform package
supported by the International Monetary Fund (IMF), reaffirmed
the government's determination to maintain stability and
confidence in the rupiah.

"The government will implement its Nov. 1, 1997 decision, and
will handle all consequences thereupon," Mar'ie told the House in
referring to the bank closures.

He noted that the 16 closed banks all had conditions deemed
necessary for closure as their assets were insufficient to cover
liabilities, mainly from substantial bad debt.

Because of bad debt, their income was insufficient to cover
costs, giving rise to losses which increased from year to year.
And the growing losses spoiled the banks' equity and negatively
affected it, he said.

According to Mar'ie, the banks' ability to mobilize funds also
weakened so they increasingly relied on the interbank money
market, which was short-term and carried high interest rates.

On Nov. 1, the government closed the 16 ailing banks as part
of a reform package backed by the IMF to strengthen the financial
sector and restore confidence in the country's economy.

Mar'ie contended that the government and Bank Indonesia, the
central bank, had followed various stages and processes over a
sufficient length of time before revoking the 16 banks' business
licenses.

"But warnings and proposals for improvement issued by Bank
Indonesia received less than a positive response from the
managements of the respective banks," Mar'ie said.

Last week, President Soeharto's son Bambang Trihatmodjo and
half brother Probosutedjo said the government had not warned them
before it closed their banks, Bank Andromeda and Bank Jakarta,
respectively.

Bambang even criticized the closure of his bank as a political
move by Mar'ie to tarnish the name of the Soeharto family.

Both Bambang and Probosutedjo, together with other
shareholders of the two closed banks, are suing Mar'ie and Bank
Indonesia Governor J. Soedradjad Djiwandono to have their banks
reinstated.

A preliminary hearing on the case is scheduled for tomorrow at
the Jakarta Administrative Court.

"Because the Republic of Indonesia is a law-abiding state, any
party feeling adversely affected by this decision can pursue the
matter through appropriate legal channels," Mar'ie said.

Mar'ie repeated his call to the owners, management and
employees of the closed banks to cooperate fully in the process
of liquidating the banks and to obey all rules and regulations.

Bank Indonesia credit director Mukhlis Rasjid said yesterday
shareholders of the closed banks should quickly hold
extraordinary meetings to liquidate their banks.

"They have 20 days (since the revocation of the licenses for
their banks) to hold a shareholders meeting and to form teams to
liquidate their banks," Mukhlis said.

Legislator Thomas Suyatno, who is also chairman of the
supervisory board of the National Private Banks Association,
admitted yesterday that the closure of the 16 banks had set off a
run on several private national banks by depositors who
transferred their accounts to state banks or foreign banks.

But the run on deposits has now stopped, Thomas said.

Thomas still considered it necessary for the government to
reassure the public that there would be no more bank closures in
the near future.

Mar'ie said it was important to make the Indonesian banks more
sound, which would also have a positive effect in helping
stabilize the rupiah.

"The government hereby reaffirms its intention to maintain
stability and confidence in the rupiah," Mar'ie said.

Soeharto

In a related development, President Soeharto summoned Mar'ie,
Bank Indonesia Governor J. Soedradjad Djiwandono, Minister of
Industry and Trade Tunky Ariwibowo and Coordinating Minister for
Production and Distribution Hartarto yesterday to discuss the
latest developments in the monetary sector.

The President instructed them to take further steps to
strengthen the rupiah and further stabilize its rate,
Minister/State Secretary Moerdiono said after the meeting.

"The President also stressed the need for further easing of
economic liquidity and credit for small businesses and
cooperatives and for a more concerted effort to bolster exports,"
Moerdiono said.

Mar'ie told the House session the multibillion package
sponsored by the IMF was necessary to discourage speculative
attacks on the rupiah and to support Indonesia's balance of
payments.

Before the crisis hit Indonesia, the government financed the
account deficit mostly with capital inflows through direct
investment, portfolio investment and debt.

Now such inflows would be minimal, and such standby funds from
multilateral institutions would be helpful to keep Indonesia's
economy afloat, Mar'ie said.

"While national foreign exchange reserves are at a safe level
at this time, sufficient to cover five months of imports, it is
prudent that we take measures to prepare standby funds," he said.

Indonesia obtained US$23 billion in loans from the IMF, the
World Bank, the Asian Development Bank and other sources to
support its economic reform package.

Other countries that have agreed to provide standby loans on a
bilateral basis include Singapore with $5 billion, Japan $5
billion, the United States $3 billion, Malaysia $1 billion and
Brunei $1.2 billion.

Mar'ie said the government would continue to increase
liquidity and lower interest rates while maintaining economic
stability to stimulate the business sector.

The head of the ruling Golkar faction at the House, Theo L.
Sambuaga, commended Mar'ie's explanation of reforms before the
House plenary session.

"Mar'ie's explanation about the government's move to tackle
the monetary crisis was very clear and comprehensive, and we
support it," Theo said. (das/rid/prb)

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