Depositors reimbursed

Another potential source of social unrest was defused after the government decided last week to use Rp 3.1 trillion (US$344.4 million) in taxpayers' money to reimburse all depositors of the 16 insolvent banks closed last November. Minister of Finance Mar'ie Muhammad disclosed at a meeting with the House of Representatives on Friday that the reimbursement of the remaining deposits at the closed banks was decided upon by President Soeharto.

The announcement should come as manna from heaven to the thousands of depositors, given the severe economic crisis that has wiped out thousands of businesses and laid off millions of workers. Without the government's largesse, there would be little chance of the depositors getting back their savings.

As Mar'ie asserted at the meeting with the House, the government was not legally bound to reimburse the depositors for they were not covered by the blanket guarantee pledged by the government on banks' deposits and debts on Jan. 27 as part of a new package of bank restructuring measures. The measure, as the finance minister said, was taken entirely out of a sense of justice for the depositors.

The manner in which the government has handled the impact of the massive bank closures is indeed unusual, as is apparent in the extraordinary nature of its latest bold move. After all, it was the first time the government had closed so many banks at one time and, as it happened, several of the closed banks had politically connected shareholders.

The government had earlier spent Rp 1.7 trillion in taxpayers' money to reimburse depositors of the closed banks with up to Rp 20 million per account. The reimbursement covered more than 70 percent of the depositors, but only about 30 percent of total deposits.

Without the unusual measure announced last week, the remaining deposits would have been repaid only after the banks' liquidation had been completed which, judging from past experiences, could have taken three to five years. But even after liquidation completion, the depositors' chances of being refunded would have been very slim because the banking liquidation regulation does not put them on top of the list of creditors to be reimbursed.

Viewed from a point of justice, and considering the potential for social backlash from a drawn-out process in settling the remaining deposits -- especially because many of the remaining depositors consist of small and medium-scale businesses --, the decision on the reimbursement, though beyond legal obligation, could be justified. This should, however, be taken only as a one- off ruling because such largesse could cause moral hazards among large depositors who are supposed to be well-informed of the soundness of banks.

Reimbursing all the depositors does not, however, solve other problems remaining in the aftermath of the closure of the banks. First of all, there seems to be an utter lack of transparency in the way in which the process of liquidation is being conducted. The public and taxpayers may be left with a feeling of blatant injustice if the government does not deal firmly with the managements and shareholders of the closed banks.

The banking law and the bank liquidation regulation clearly stipulate that directors and shareholders of closed banks shall be held personally responsible for the liabilities of their banks if assessments prove them responsible for the insolvency of their banks. Yet it seems no legal action has been taken against the directors and shareholders.

It also would be totally unfair to taxpayers if the government does not act firmly, consistently and fairly in collecting the credits of the closed banks irrespective of debtors' political connections.