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)