Germany recommends better banking system

Germany recommends better banking system

By Oei Eng Goan

JAKARTA (JP): Indonesia's sudden economic meltdown last July
has so shocked friendly nations from within and outside the
region that they are willing to lend a helping hand to try to
resolve the monetary crisis the country is facing.

Leaders from Singapore, Malaysia, Brunei and Thailand --
fellow members of the Association of Southeast Asian Nations --
and high-ranking officials from major donor countries like the
United States, Japan, Britain and Germany, have visited Jakarta
to offer their help, indicating that they are not merely fair-
weather friends.

Germany has demonstrated intensive activities during the past
two months after Chancellor Helmut Kohl made telephone calls to
President Soeharto at the beginning of the year, when the crisis
deepened and a series of riots broke out in several towns
following price hikes of food staples.

"After the phone calls, Chancellor Kohl sent a fact-finding
mission to Jakarta to see what Germany could do to help
(Indonesia) cope with the situation," German Ambassador Heinrich
Seemann told The Jakarta Post in an interview recently.

The mission, led by former secretary of state Horst Kohler,
who is presently the president of the German Savings Bank
Association, comprised economists and bankers, including Klaus
Regling, former IMF representative in Jakarta who is now director
general of the Federal Ministry of Finance.

After talks with President Soeharto and a number of Indonesian
dignitaries and World Bank and IMF officials here, the mission
discovered that one of the main problems the government is facing
is the offshore debts of the private sector, which amount to
US$73.96 billion, Seemann said.

Concern over Indonesia's alarming level of short-term foreign
debt by the private sector has triggered a loss of confidence in
the rupiah, which fell sharply from Rp 2,450 to the dollar last
July to the present fluctuating level of Rp 10,000.

Seemann said the mission had come up with a three-point
proposal and recommended that:

1. Indonesia badly needs a better supervisory structure for
its banking system;

2. Bank Indonesia (the central bank) should act independently;
and

3. Finding quick solutions to the problems to avoid a large
number of small and medium scale firms from bankruptcy.

Citing the experience of the German central bank, the
Bundesbank, in controlling the mark as Europe's strongest
currency, Seemann stressed the importance of Bank Indonesia to be
independent in its operations.

"We have informed the central bank's former governor
(Soedradjad Djiwandono) and the incumbent governor (Sjahril
Sabirin) that a central bank governor should demonstrate his
independence and not become a member of the country's cabinet,"
he said.

As a follow-up to Kohler's mission, the Bonn government sent
last month a bigger delegation to Jakarta led by Finance Minister
Theo Waigel, who brought with him a group of parliamentarians, a
dozen professor and scores of business people to study the
economic situation.

"Mr. Waigel has tried to formulate a program for
institutionalizing the banking supervisory system, which has been
agreed upon, and for the moment, both governments are still
talking about the details," Seemann said. He did not elaborate.

When asked about German assistance, he replied: "We would
continue with our aid, but at the moment, it seems that it is
important for Indonesia to stick to the IMF agreement."

The ambassador was referring to an agreement signed by
President Soeharto before the IMF director Michel Camdessus on
Jan. 15 to win the fund's $43 billion bailout package to cope
with the crisis.

Seemann also expressed his optimism for the ongoing
negotiations between Indonesia and the IMF regarding disbursement
of the aid, which was postponed following Jakarta's insistence
that it needs to maintain the monopoly and control of some basic
commodities for sometime to avoid public unrest.

The IMF, however, considered it as backsliding on the part of
the government.

"The IMF seems to be willing to look deeper into the
problems... We are hoping very much that Indonesia and the IMF
will soon reach an understanding and the two come together and
restore confidence between the two sides," Seemann said.

He also said the Bonn government has opened a credit of 300
million German mark ($165 million) to help Indonesia's small and
medium-scale companies which are having difficulties in getting
letters of credit.

Touching on bilateral ties with Indonesia, he said that
Germany, as a long-time friend, stands firmly by Indonesia and is
ready to help develop the country's human resources.

"We believe in the country's future and we want to be
helpful," he said, adding that one of the living proofs of his
country's interest here is the setting up of the German Center
for Industry and Trade at Bumi Serpong Damai in Tangerang, 25
kilometers west of Jakarta.

The topping off ceremony for the center, which provides
information for business people who want to stake their ventures
in the local market, will be held today.