Fuad says banking reform implemented rapidly

Sat, 02 May 1998 | Source: DJ

GENEVA (Dow Jones): Indonesian Minister of Finance Fuad Bawazier yesterday rejected a recent assessment by rating group Standard & Poor's that the Indonesian government isn't pushing ahead fast enough with its banking sector reforms.

"That is their judgment," he said. "I believe we are moving rapidly and this time the reforms are touching almost all sectors" of the banking system.

Fuad, speaking to journalists at the Asian Development Bank's (ADB) annual meeting here, said the country is "moving rapidly" in implementing banking sector reforms.

Fuad said the government is striving to be as "transparent as possible" in identifying the amount of bad commercial bank loans, and particularly the institutions that are - as he termed it - in "deep trouble."

Indonesia has already put forward a plan to restructure its mammoth $68-billion corporate debt that follows a framework previously used by Mexico.

Fuad estimated that about $23 billion of this amount affects the commercial banking system.

Indonesian banks are scheduled to meet foreign creditors in Tokyo on May 8 to discuss a broad agreement to restructure debts. The two parties agreed to a general framework on how to achieve this when they last met in New York on April 15-16.

Fuad said the government would adopt a "hands off" approach to the talks. "We want free negotiations between the borrowers and the creditors," he said.

While the government will strive to improve the operating conditions of banks by promoting exchange-rate stability and a adequate dollar liquidity in the financial system, Fuad said there won't be bail outs.

Indonesia, he added, is "fully committed" to implementing without exception all the reforms set out by the International Monetary Fund's (IMF) in its rescue package for the country.

In an effort to bring a speedy resolution to the corporate debt restructuring program, key European central bankers will be enlisted to help, said Bank Indonesia's managing director Miranda Goeltom, in an interview with Dow Jones Newswires, also on the sidelines of the ADB annual meeting.

Miranda said the bankers, she, Fuad and Bank Indonesia Governor Sjahril Sabirin talked with this week "expressed their belief that Indonesia will recover, although it will be painful."

But she acknowledged that bankers have concerns about the Indonesian government's commitment to continue with the reforms mandated by the IMF's US$43 billion rescue package.

Miranda said bankers didn't specifically ask about the timetable for IMF-package reforms, but more broadly on the consistency of implementing them.

The IMF is expected to approve on Monday the release of one of three outlays per month totaling $3 billion to Indonesia.

Meanwhile, Fuad said he also expects the ADB to shortly free the first tranche of its $1.5 billion loan to Indonesia to strengthen and reform its financial sector, shortly after the first tranche of the IMF loan is paid out.

A provisional signing date for the release of the ADB funds has been set for May 14 in Jakarta.

Fuad strongly rejected the criticism from some quarters that the controversial issue of dismantling Indonesia's monopolies isn't being tackled vigorously enough.

Complaints that Indonesia was continuing a monopoly on cloves despite a decree opening up trade have fueled doubt in markets over whether Jakarta will fully implement the reforms it agreed on with the IMF in early April.

Two earlier agreements had to be renegotiated after Jakarta balked, and markets sank.

"First of all - and this isn't an excuse - the (monopoly) system has been there for many, many years and now we are trying to dismantle it," Fuad said.

"You can have my word that I am implementing the (IMF) package," he said, adding that there are "irresponsible allegations...but no proof" that the government is backsliding on dismantling monopolies. "If there is something wrong, then I'll fix it," he said.