Banks told to prepare for free trade

Banks told to prepare for free trade

JAKARTA (JP): Bank Indonesia Governor J. Soedradjad Djiwandono
told local banks yesterday to outline long-term development
strategies, and consider restructuring, to prepare themselves for
free trade in services both in regional and global markets.

"With increasing tough competition, the banking industry has
to get more resilient, efficient, and competitive to face
globalization," Soedradjad said in his written speech at a
seminar organized by Atma Jaya Catholic University.

Soedradjad explained that Indonesia has included the banking
sector in the General Agreement on Trade in Services (GATS)
negotiations, which is currently underway among members of the
World Trade Organization.

He warned that in the ongoing negotiations, the industrialized
countries are pressing Indonesia for greater concessions in the
financial sector, particularly related to market access and
preferential treatment of national champions.

"We have very carefully given our binding commitment,
considering inter-dependency among sectors so that it will not
create a negative impact on our economy as a whole," Soedradjad
said.

In addition to the on-going negotiations for GATS with the
WTO, Indonesia is currently also engaged in negotiations for free
trade in services with the members of the Association of
Southeast Asian Nations (ASEAN) under the ASEAN Framework
Agreement on Services (AFAS).

Meanwhile, Coordinating Minister for Production and
Distribution Hartarto told journalists after reporting to
President Soeharto here yesterday that Indonesia needs to protect
some of its services even under free trade.

Hartarto said ASEAN economic ministers would discuss the
service sector in their informal meeting in Singapore on April
25-27.

Soedradjad noted that the local banking industry had to be
prepared for such free trade arrangements, both under AFAS and
GATS, through restructuring, mergers and strict licensing.

He noted that the restructuring and merging of banks is
necessary to make them not only healthy, but also big and strong
enough to compete on the global market.

"Financially and psychologically, it is reasonable enough for
banks under one group to pioneer mergers among banks in
Indonesia," Soedradjad said, adding that mergers are a way to
reach synergy among local banks to face the onslaught of big
foreign banks.

He noted that for local banks, the challenge will come not
only from foreign banks but also from local capital markets which
have become increasing popular as an alternative source of
financing. (rid)