Government to announce closure of 39 banks

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)