BI urged to help indebted companies

JAKARTA (JP): Banker Mochtar Riady yesterday urged Bank Indonesia to intervene in the swap market, instead of the spot market, to help indebted firms and ease pressure on the rupiah.

Speaking at a seminar hosted by Trisakti University here, Mochtar also urged the central bank to increase the statutory minimum capital of a commercial bank to US$100 million and set the maximum individual or group ownership of a bank at 15 percent.

Mochtar, chairman of the Lippo Group, also suggested that bank credits to good companies that are having liquidity problems should be converted into asset-backed convertible bonds to prevent those companies from defaulting.

"Bank Indonesia should not intervene in the spot market anymore but rather in the swap market by selling swap facilities to companies having trouble paying their offshore debts and exporters in need of dollars to import raw materials," Mochtar said.

Swap transactions in the foreign exchange market are the simultaneous buying and selling of a currency in approximately equal amounts for different maturity dates.

Intervening in the spot market had little chance to ease the demand for U.S. dollars because the dollars released by the central bank in the spot market could be purchased by speculators, instead of companies in need of the greenback, Mochtar said.

The swap premium had to be adjusted with the market rate and the maturity of the swap should be in line with the maturity of the buying companies' credit maturity.

To avoid money laundering and speculative dollar buying, Bank Indonesia should check the identity of those buying in the swap market.

By selling swap facilities, Mochtar said, the central bank would protect companies from sharp fluctuations of the rupiah against the greenback and prohibit them from entering the currency market together to sell their rupiah and buy dollars.

Bank Indonesia has introduced the swap facility especially to export-oriented companies to encourage them to unload their dollars.

The central bank's governor, J. Soedradjat Djiwandono, said that the facility would protect exporters from the sharp fluctuation of the rupiah against the American greenback and to ensure that they would get the dollars from the central bank when they needed them to import raw materials.

To strengthen the banking industry, Mochtar suggested that Bank Indonesia raise the statutory minimum capital to an equivalent of US$100 million.

The central bank also should give a deadline for banks to meet the new capital requirement. If they could not raise their capital before the deadline, they should be merged with or acquired by other banks, or be downgraded into secondary (rural) banks.

Mochtar also suggested that the central bank limit individual, family or group ownership of a bank to a maximum of 15 percent to solve the problem of legal lending limits.

"Based on experience, the main cause for a bank failure is because of too large an ownership (by one family or group). Maybe it is time to limit bank ownership by a family or group to no more than 15 percent," Mochtar said.

He also called on the establishment of a banking interest rate consultative council, comprising of both private and state bankers as well as economists, to set monthly banking rates, monitor their development and provide suggestions to the central bank in setting its benchmark rate.

In suggesting that banks convert some of their credits into asset-backed convertible bonds, Mochtar said that banks could place their people as finance directors at the indebted companies to ensure clean book keeping.

The banks could also invite public accountants to audit the companies.

Mochtar said Bank Indonesia should help the process of securitization of nonperforming debts by accepting those convertible bonds as collateral to attain liquidity credits.

The central bank should then help create secondary markets for those convertible bonds. (gis)