Economists hail banking move

Economists hail banking move

JAKARTA (JP): Analysts and businessmen hailed the government's
decision on Saturday to close down 38 insolvent private banks,
take over seven more and recapitalize nine others, but reiterated
that the success of the bank restructuring program lies in
subsequent measures.

They said the most daunting task for the government was to
bring down interest rates to solve the negative spread problems
currently burdening the local banks.

Former Bank Indonesia director I Nyoman Moena and noted
economist Sjahrir said existing banks, even healthy ones, could
easily go into the red if negative spreads continued.

"Those banks could collapse and be closed down by the
government again if negative spread prevails," Moena told The
Jakarta Post on Saturday.

Negative spread occurs when a bank's costs for managing funds
is higher than the interest rates charged on credits. Since the
monetary crisis started in mid 1997, banks have been suffering
negative spread as the government has tightly controlled the
money supply.

Moena said the government should begin channeling credit
schemes such as trade financing and farm loans through the banks
to help reactivate the private sector as well as tackle the
negative spread problems.

Sjahrir, meanwhile, said the government could tackle the
latter problems by reducing interest rates, backed up by a
prudent monetary policy.

Sjahrir, speaking on behalf of the Indonesian Chamber of
Commerce and Industry's (Kadin) Institute of Economic Research,
Study and Development, also called on the government to prevent
banks affected by Saturday's decisions from laying off their
workers.

"Our social and political conditions cannot afford more
turbulence arising from white collar workers... especially while
we are approaching the general election on June 7," Sjahrir said
in a statement.

The government on Saturday closed 38 insolvent private banks
and nationalized seven larger ones. It also let 73 healthy
domestic banks continue to operate.

Bank Indonesia director Subardjo Joyosumarto revealed that the
central bank had allocated some Rp 50 trillion (US$5.5 billion)
in bridging funds to pay off depositors of the 38 closed banks.

Subardjo also disclosed that recapitalization of the nine
banks would cost Rp 21.3 trillion.

Bank Internasional Indonesia would need Rp 7.6 trillion, Bank
Lippo Rp 4.6 trillion, Bank Niaga Rp 3.7 trillion, Bank Universal
Rp 2.4 trillion, Bank Bali 1.8 trillion, Bank Bukopin Rp 767
billion, Bank Prima Express Rp 252 billion, Bank Arta Media Rp
150 billion and Bank Patriot Rp 3.2 billion.

The government would provide up to 80 percent of the
recapitalization funds to the nine banks by issuing bonds, while
the owners must supply the remaining 20 percent by April 21.

Economist Umar Juoro from the Center for Development and
Information Studies called on the government and owners of the
nine participating banks to work together to woo foreign
investors.

"The foreign investors may be more willing to consider
investing in the local banks because the criteria are clearer
now, and the presence of these investors would also increase the
country's credibility," he told the Post.

Umar said the criteria which the government's bank
restructuring was based on were better and more transparent than
previously. This would help efforts to restore the government's
credibility and speed up economic recovery.

He attributed this progress to the combined deal made among
the government, the central bank, the Indonesian Bank
Restructuring Agency, the International Monetary Fund and the
World Bank.

Umar and his fellow economists, however, agreed that the
crucial part of the bank restructuring program was in carrying
out the next moves.

Other economists, however, regretted the fact that the
government did not publicize the business plans, the "fit-and-
proper" qualities of the nine banks which have entered the
recapitalization process and the names of the errant bankers.

Sri Mulyani Indrawati, an economist at the University of
Indonesia, said the government had to present the public with the
clearest picture of each of the surviving banks.

"The public has the right to know specific conditions of the
banks, including their owners and management, which will be
recapitalized with state money," she was quoted by Antara as
saying.

Bank analyst Laksamana Sukardi agreed and said the government
must explain the reasons why certain banks were taken over by the
government or allowed to operate without recapitalization while
some others were closed down.

Such an explanation was necessary to quell the spreading
rumors that the government is protecting certain businessmen with
strong political connections.

"Such negative rumors will eventually destroy people's
confidence in the banking system. The bank needs such confidence
to survive and develop," he said.

Bad bankers

Laksamana also urged the government to announce the names of
errant bankers who had abused Bank Indonesia liquidity facilities
for their banks in order to promote their own business interests.

"But this must be done carefully because not all owners of the
closed banks use such liquidity credits," he said.

The government initially planned to announce the names of
miscreant bankers and creditors, but later backed off due to
legal considerations.

Kadin chairman Aburizal Bakrie, whose Bank Nusa Nasional was
nationalized, said he accepted the decision and urged the
government to use the banks it had taken over or would
recapitalize to take care of the real sector, especially the
small and medium-scale businesses.

"Without the banks' help, it would be very hard for businesses
now to survive the crisis."

Businessman Fadel Muhammad, whose Bank Intan was closed down
on Saturday, said he "fully accepted the decision," after his
proposal to turn the bank into an Islamic-based syaria bank, with
the help of Oman's Shanfari Group, was turned down by the IMF.

Fadel also called on the government to look after small and
medium-scale businesses.

Meanwhile, chairman of the Indonesian Footwear Manufacturers'
association Anton Supit expressed concerns over the impact of the
closures on the activities of companies affiliated to the banks.

"The financial activities of companies that rely on the banks
or put their funds in them will be disrupted temporarily, unless
the government takes immediate measure," he said. (das/rei/rid)