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)