Civil servants' salaries increased by 15 percent

Fri, 01 May 1998 | Source: REUTERS

JAKARTA (Agencies): Indonesia's civil servants will receive 15 percent pay increases from today, Coordinating Minister for Economy, Finance and Industry Ginandjar Kartasasmita said yesterday.

"We are raising civil service salaries 15 percent as of May 1," he told a small group of journalists.

He conceded that this did not match inflation which jumped more than 25 percent in the first three months of this year.

"But it's all we can do," he added.

He also confirmed that fuel and electricity prices will rise in May and early June.

"Indonesia will abide by its understanding with the IMF that fuel and electricity prices will be adjusted in the month of May and early June," he said.

He said that increasing those rates is a 'very high political risk at present time when you have social unrest.'

But, Ginandjar said, it 'will show the market we're determined to repair our economy and stop the bleeding through (government) subsidies.

He recalled that Indonesia agreed with the International Monetary Fund in January that fuel and electricity prices would go up, but noted it was a matter of timing for the government.

He also said that all subsidies would be abolished by October 1 under a reform agreement with the IMF except for those on rice and soybeans.

Mines and Energy Minister Kuntoro Mangkusubroto has said domestic fuel prices will receive a cross-subsidy involving a higher price for petrol and lower prices for diesel and kerosene to ease the social impact of the increases.

More banks to close

Answering questions on the bank restructuring program, Ginandjar said he expected more banks would halt operations as part of the country's economic reform program.

"We should expect some more banks should cease operation," Ginandjar added.

He gave no precise time frame but said the move could take place within a matter of weeks. He did not name the banks.

Indonesia late last year closed down 16 ailing banks. It suspended the licenses of seven others and placed seven more under supervision of the Indonesia Bank Restructuring Agency (IBRA) in early April.

IBRA has another 40 of Indonesia's more than 200 banks under its surveillance.

Ginandjar said the government had no target number for banks to be closed or placed under supervision.

"No, we don't set up numbers, but we set up minimum capital requirements," he said.

"We are not playing with targets, but (are) determined that banks that cannot survive cease to operate," he added.

Indonesia has set a minimum capital requirement of 250 billion rupiah after loan-loss provisions by the end of 1998.

Ginandjar said it was important to educate the public about the reasons for the reforms, but added that he did not anticipate any runs on banks when the latest moves were published.

"I think there'll be no rush if we close more because people understand what is being done," he said.

He said banks under IBRA supervision were being carefully scrutinized to see if there had been any illegal activities. He said legal action might be taken against former management if there had been any criminal acts.

The government plans to issue bonds to cover the cost of banking reforms agreed with the International Monetary Fund in return for a bail-out of more than $40 billion to help the ailing economy.

"Bonds will be issued when the time is right," Ginandjar said, adding that international advisers working with the central bank would provide expert advice.