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)