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.