Caution prompted 'bank closure delay'

Caution prompted 'bank closure delay'

SYDNEY (Dow Jones): Indonesia's decision last week to delay closing banks was because it wanted to act cautiously, and needed to collect more information, Indonesian State Minister for Development Planning Boediono said Friday.

"The main reason is we want to be very, very sure that those (banks that) are liquidated are really the ones that aren't viable," he told Dow Jones Newswires.

"Because this kind of decision is irreversible, we want to act after careful consideration... and we felt we had to collect a bit more information."

He said plans remain on track to meet the deadline to shut the banks, expected at the end of next week.

"The rules remain - two weeks is the maximum postponement," the minister added.

Boediono is attending a meeting in Sydney of Asian aid ministers and donors including the International Monetary Fund, (IMF) the World Bank, and the Asian Development Bank.

The Indonesian government last week shocked the market by postponing the bank closure. The move has been viewed by many as the result of the government succumbing to pressure from certain politically connected bank owners who requested more time to raise the necessary capital to avoid a closure.

IMF First Deputy Managing Director Stanley Fischer this week said the fund's latest letter of intent with Indonesia had been delayed because of the country's "lack of clarity" in reporting how it's reforming its banking sector.

Indonesia is planning to spend up to Rp 300 trillion (US$33.7 billion) to recapitalize some of its beleaguered banks. Banks that don't meet a minimum required capital standard will face closure unless their owners come up with new cash injections.

The decision to postpone the closure of up to 40 banks for two weeks followed "very serious" discussions in the cabinet, Boediono said, pointing to dissent over the move.

"There have been very serious discussions of this among cabinet members, and specifically the economic team, but we came to one conclusion that we had to delay, and we do that collectively although the discussion was very intense," he said.

Indonesia is under international pressure to show it's serious about cleaning up its banking system. Analysts now speculate that the government will close far fewer than the previously announced 40 banks.

The government is also lagging behind in publishing more details of the bank-recapitalization plan, as well as details about the bonds it will issue to finance the program.

Elsewhere, Boediono said he's confident the government will finance its budget for fiscal year 1999-2000 through additional funds from the IMF, the World Bank and the Asian Development Bank.

Bilateral funding will complete the financing requirements, he said.

Indonesia is constitutionally bound to have a balanced budget.

The IMF - which is leading a bailout program for Indonesia - is considering lending an extra $1 billion on top of its existing $11.3 billion standby loan to the country.

The IMF executive board is due to consider the extra funds at a meeting in mid-March.