BI urged to help indebted companies

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)