Economists welcome the merger of four state banks

JAKARTA (JP): Economists and analysts hailed the government's plan to merge four of the country's seven state-owned banks, saying it was an important step toward improving the country's ailing banking industry.

Economist Sri Mulyani Indrawati, I Nyoman Moena and Tjandra Kartika separately told The Jakarta Post Wednesday that the merger be an important breakthrough in preparing for tighter competition in the banking industry in the coming years.

However they warned that the move would mean nothing if the government, as shareholder, had no clear picture about the future direction of the merged bank.

"The merger of the four is good but the objective of the merge should be clearly defined first," said I Nyoman Moena, chairman of the supervisory board of the National Private Bank Association (Perbanas).

"The merger will bear no fruit, if goals are not precisely set," he said.

Minister of Finance Mar'ie Muhammad said Wednesday that four state banks -- Bank Pembangunan Indonesia, Bank Bumi Daya, Bank Dagang Negara and Bank Ekspor Impor Indonesia -- would be merged into a single bank.

The merger process should be completed by July this year.

Mar'ie said the government wanted to ensure that the new bank formed by the four merged state-banks would be in a position to compete globally when financial services were liberalized.

To achieve this the government would provide foreign banks of international reputation with the opportunity to become shareholders, Mar'ie said.

Economist Sri Mulyani Indrawati from the University of Indonesia also said the government should clearly define the purpose of the merger to ensure that the best result was achieved.

"The government should set a clear goal for the merger. If the purpose has been decided, the merger will be achieved more easily," she said.

"The government should specifically define the goal of the merger or else it will place another burden on the government.

"If the government forces the merger of the four banks now, I think it could create another big banking calamity," she said.

Tjandra Kartika, head of research at Mashill Jaya Securities, welcomed the government's merger plan but warned that poorly managed banks should not be merged with other bad banks.

"If a bad bank merges with another bad bank, the merged bank will not be a healthy one," he said.

The government said Bank Tabungan Negara would become a subsidiary of the listed Bank Negara Indonesia, while Bank Rakyat Indonesia will continue as an independent bank.

The minister said that foreign banks would be given the opportunity to become partners in the merged bank.

On foreigners becoming shareholders in the merged bank, most economists said Indonesian banks could not avoid foreign ownership in the next millennium.

"But make sure that Indonesia has a legal framework before foreign shareholders enter the country's banking system," Sri Mulyani said.

Mar'ie also said the government would set up a credit settlement company to manage the nonperforming loans of the four merged banks.

"The new company will be responsible for liquidating the nonperforming loans. However, the debt collection process will continue and law enforcement will be fully executed."

Undermine

Other economists and analysts also hailed the merger measure but said the government's commitment to cleaning up the banking industry could be undermined by a court decision Tuesday to suspend the liquidation of Bank Jakarta, one of the 16 banks liquidated by the government on Nov. 1 last year.

The Jakarta Administrative Court said Tuesday that the liquidation of Bank Jakarta, partly owned by President Soeharto's half-brother Probosutedjo, would be held in abeyance until a suit filed against the closure was decided.

"This development shows another setback in the country's financial reform. The government wants to launch efforts to move forward but others want to pull it back," one analyst, who declined to be identified, said.

"This will surely serve as a bad precedence for any future liquidations in the country's banking system," the analyst said.

Bank Jakarta and 15 other banks were closed on Nov. 1 under a restructuring of the financial sector agreed upon by the government and the International Monetary Fund (IMF).

Indonesia and the IMF had previously agreed on a reform-cum- aid program under which Jakarta was to receive a financial package worth more than US$30 billion. (aly)