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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