BI credits will not exert inflationary pressures: Minister

JAKARTA (JP): Minister of Finance Fuad Bawazier said yesterday Bank Indonesia had injected Rp 80 trillion (US$1.07 billion) in liquidity credits into ailing banks but assured that the move would not cause strong inflationary pressures.

Fuad said the liquidation of 16 banks last November had created a crisis of confidence in the country's banking system, prompting most depositors to withdraw their funds from local banks.

"This has led most banks into severe liquidity problems and the central bank (Bank Indonesia) should assist them to stay afloat," he added.

"Since then, Bank Indonesia has injected liquidity credits worth Rp 80 trillion into the country's banking system," he told reporters after installing two new officials at the Ministry of Finance yesterday.

Fuad installed Agus Haryanto as the new secretary-general of the Ministry of Finance to replace Dono Iskandar who was appointed Bank Indonesia director last week. A. Anshari Ritonga was installed as the new director general for taxation to replace Fuad.

Ritonga was formerly the head of the West Java office of the directorate general of taxation.

Fuad, however, assured that the huge injection of funds would no longer cause strong inflationary pressures for the rest of the year because the money had already been in circulation.

"The total funds injected by the central bank since the economic crisis hit the country has been in the monetary system, so it will no longer add to inflationary pressures," he said.

The revised reform package signed last week between the government and the International Monetary Fund (IMF) projects a cumulative inflation of almost 50 percent for the calendar year but only 17 percent for the fiscal year ending next March.

Fuad defended the capital injection, saying it was still much smaller than in many other countries facing similar banking crises.

"In other countries, the cost of bank restructuring in the past has reached as high as 20 percent of their gross domestic product," Fuad said.

The IMF-Indonesian package estimates that the total cost of bank restructuring for the country will eventually total Rp 150 trillion, or 15 percent of GDP.

Fuad also said yesterday the government would soon announce the names of 40 banks that received large sums of liquidity credits from the central bank and had now been put under the stringent supervision of the Indonesian Bank Restructuring Agency (IBRA).

"We will announce their names," he said, declining to specify the timing of the announcement.

He said that disclosing the names at this point in time could entirely destroy what remains of the public confidence in the industry.

"So just wait. When the public calms down, we'll announce them," he said.

Strengthening the banking sector is a major component of the reform package to improve the country's ailing economy.

Early this month, the government suspended the operations of seven banks, including Centris Bank, Deka bank, Hokindo Bank, Bank Kredit Asia, Bank Pelita, Bank Subentra and publicly listed Bank Surya. Another seven -- Bank Ekspor-Impor Indonesia, Bank Danamon, Bank Dagang Nasional Indonesia (BDNI), Bank Umum Nasional, Bank Tiara Asia, Modern Bank and PDFCI -- were put under the management of IBRA as part of the government's measures to heal the banking system.

These 14 banks also received large liquidity credits from the central bank.

Last November, the government liquidated Bank Harapan Sentosa, Sejahtera Bank Umum, Bank Andromeda, Bank Pacific, Bank Astria Raya, Bank Guna Internasional, Bank Dwipa Semesta, Bank Kosagraha Semesta, Bank Industri, Bank Jakarta, Bank Citrahasta D., Southeast Asia Bank, Bank Mataram Dhanarta, Bank Pinaesaan, Bank Anrico and Bank Umum Majapahit as part of the country's effort to heal the banking system. (aly)