Economists urge Habibie to revamp banking sector

Economists urge Habibie to revamp banking sector

JAKARTA (JP): Analysts approve of President B.J. Habibie's
pledge in his recent state address to overhaul the country's
ailing banking sector, but demand that his oath be more than mere
rhetoric.

Rizal Ramli, a senior researcher at the Econit Advisory Group,
pointed out that the government had not taken clear measures to
mend the country's troubled banking system.

"As far as I know, the authorities have so far only been
auditing the banks with foreign assistance. We have yet to know
what the solutions are," Rizal told reporters after attending the
state address.

Bank Indonesia's former governor, J. Soedradjad Djiwandono,
called on the government to indiscriminately take firm action
against ailing banks.

"If necessary, owners who cannot take responsibility for the
allocation of credits must be brought to court," Soedradjad was
quoted by Antara as saying Saturday.

Habibie said in his state address at the House of
Representatives Saturday that mending the shaky banking sector
was one of his top priorities.

"The overhauling of the banking system is so high on our
agenda that we will not stop doing it until our banking system
becomes strong and healthy and capable of operating with
international standards," Habibie said in his state of the nation
address to commemorate Independence Day on Aug. 17.

Pande Radja Silalahi of the Centre for Strategic and
International Studies (CSIS) said the government must not
practice double standards in the management of ailing banks.

But he warned that extra care should be taken in dealing with
troubled banks so that any measures, such as closing insolvent
banks or taking errant bankers to court, would not worsen the
already low confidence in the industry.

Should that happen, the real sector -- all industries other
than the financial -- would face dire repercussions, Pande said.

Five top executives of two out of the 16 private banks which
were closed down by the government last year have been taken to
court for allegedly breaching their banks' legal lending limit.

Bank Indonesia Governor Sjahrir Sobirin said Saturday the
government would take firm action against others found to have
violated the banking laws.

"But we will be extra wary in taking a case to court. Because
this regards the life of someone, we do not want to make
mistakes," Sjahrir told reporters Saturday after the President's
speech.

Rizal urged the government to convert about Rp 140 trillion in
liquidity injected by Bank Indonesia to help troubled banks into
stakes in the banks.

He said the owners of the banks should take responsibility for
causing their banks' insolvency and therefore surrender their
personal assets to repay their debts to the government.

Rizal said the government must not exempt owners or executives
of the large insolvent banks, which received a large amount of
liquidity support from Bank Indonesia, from being sanctioned like
those of other banks.

He was referring to six troubled banks which have been taken
over by the Indonesian Bank Restructuring Agency. The government
recently declared four of the six banks insolvent, though it did
not name the banks.

The economists also warned of the impending harmful effect of
banks' high interest rates resulting from the government's tight
monetary measures.

Habibie said Saturday that interest rates would be maintained
at the current high level as it was necessary to encourage
depositors to place their funds in banks and to control
inflation.

"We are aware that a high interest rate is a burden for the
business world. However, this policy for the time being still has
to be maintained... so that people continue to put their money
in the bank," he said.

Soedradjad said high interest on loans, reaching as high as 70
percent, would in turn backfire on the banking sector because
many companies would default on their loans.

"Either way, you will get hit," Soedradjad said. (das)