Bundesbank to assist RI in bank reforms

JAKARTA (JP): Deutsche Bundesbank, Germany's central bank, is offering its expertise to help Indonesia with the difficult task of consolidating the country's ailing banking industry, said a senior official of the bank.

Stefan Schoenberg, a director at Deutsche Bundesbank, said here yesterday that Germany was looking for possibilities to assist Bank Indonesia in the areas of bank supervision and monetary policy.

"We've also talked with the finance minister, Bank Indonesia governor, and IBRA (Indonesian Banking Reform Agency) to get an opinion on what are the needs of the Indonesian authorities," he said following a meeting with Indonesia's Coordinating Minister for Economy, Finance and Industry Ginandjar Kartasasmita.

He said his team would soon make proposals on how to meet those needs.

He said Ginandjar had mentioned two areas in particular in which the Bundesbank could help: central bank legislation and banking supervision.

He explained that Indonesia was facing a very difficult situation in its banking sector due to the sharp drop in the value of the rupiah against the U.S. dollar and the alarming level of bad debts.

It is in the interest of the Indonesian government "that such events do not repeat themselves and that you have a sound banking system," he said.

Analysts have said Indonesia's banking sector is on the brink of collapse. The rupiah has fallen sharply since August and confidence in the banking sector is at its lowest point.

The currency fell to its lowest level of Rp 17,000 to the U.S. dollar in January, compared to Rp 2,450 in July.

The country's banking sector is currently being examined by the IMF, which together with Indonesia's economic ministers team has been in a marathon meeting for two weeks reviewing the country's economic reform programs.

A review on monetary policy and banking reform is expected to be completed today, said IMF Asia-Pacific director Hubert Neiss yesterday following a meeting with officials of Bank Indonesia.

Indonesia has some 212 private banks, which are being encouraged to merge into less than 30.

The government has set a minimum bank capital requirement of Rp 1 trillion to be met by the end of this year; Rp 2 trillion by the end of 2000; and Rp 3 trillion by the end of 2003.

With most banks having an average Rp 500 billion in capital, they will be forced to either merge or invite foreign investors to fulfill the new requirement.

The government set up IBRA in January to help rehabilitate domestic ailing banks. Rumor has it that some 54 private banks have been in the agency's intensive care unit.

In an effort to revive confidence in the banking sector, the government has said that it would guarantee foreign currency and rupiah-denominated claims by depositors and creditors of all locally incorporated banks. (08)