Sat, 13 Mar 1999

Government to announce closure of 39 banks

JAKARTA (JP): The long-awaited massive bank restructuring program, which an informed source said would close down 39 insolvent banks and put seven others under the government management, is to be launched on Saturday.

Coordinating Minister for Economy, Finance and Industry Ginandjar Kartasasmita confirmed on Friday that the government would decide on the closure of insolvent banks at a meeting between senior economic ministers and President B.J. Habibie on Saturday morning.

The minister said that the finance ministry, Bank Indonesia, and the Indonesian Bank Restructuring Agency were involved in the finalization process for the restructuring measure on Friday.

Ginandjar explained that experts from the World Bank, the Asian Development Bank, and the International Monetary Fund also participated in the finalization process to remove doubts over the objectivity of the decision.

"Hubert Neiss also took part in the final review process," he told reporters following a meeting with the President.

He justified the participation of the multilateral agencies' experts, saying they had already had extensive experience in bank recapitalization programs in South Korea, Thailand, Mexico and South America.

Neiss is the IMF Asia Pacific director, who arrived in Jakarta on Tuesday to make sure that the government was not delaying the bank restructuring measure, originally scheduled on Feb. 27.

The government was set to announce the closing down of 40 banks on Feb. 27 but postponed it at the last minute on the announcement date on technical grounds.

This has raised speculation that the government surrendered to pressure from well-connected businessmen to prevent their banks from going down.

Neiss expressed dissatisfaction over the delay and urged the government not to make another postponement.

"The participation of Neiss and other experts in the process is also meant to show that the final decision will not be based on political or personal considerations," Ginandjar said.

"This, however, does not mean that without their presence, we'll likely make a decision that is against our conscience and the truth," he added.

He hoped that the upcoming announcement would send a positive signal to the overall programs to rebuild confidence in the crisis-hit economy.

A source familiar with the bank restructuring process told The Jakarta Post on Thursday that the government had decided to close down 31 insolvent banks and to take over between 11 and 17 others.

Earlier on Tuesday, he said, the judgment was to close down only 17 banks, but this decision was strongly opposed by Neiss on Wednesday evening in a meeting with several senior economics ministers.

The same source, however, said on Friday that the government again changed its decisions on Thursday afternoon, moving to close down 39 banks and take over 11 banks.

But late on Thursday, the owners of four sequestered banks decided to inject more fresh money in order to bail out their banks, thereby reducing the number of banks to be taken over by the government to seven.

Saturday's bank restructuring announcement would also include details of the government-sponsored bank recapitalization program.

Under the recapitalization program, banks with a capital adequacy ratio (CAR) of less than minus 25 percent will have to close.

Banks with CAR levels of between minus 25 percent and less than 4 percent are eligible for the government's recapitalization program if they are able to provide acceptable business plans, the management and owners meet the "fit and proper" criteria, and if they come up with at least 20 percent of the recapitalization funding in cash. (rei/prb/02)