Govt defends delay of bank closures

JAKARTA (JP): The government insisted on Sunday that the delay of the scheduled bank closures was entirely due to technical considerations and had no political motives, denying that lobbyings by bank owners had anything to do with it.

Finance Minister Bambang Subianto and Bank Indonesia's (central bank) Governor Sjahril Sabirin told a news conference that the delay of the bank closures by two weeks from the originally planned date of Feb. 27 was designed to ensure a fair, transparent and accountable decision.

"We decided to give several banks in Category B until Wednesday to revise their business plans and all other banks until March 9 to inject fresh equity funds to meet the minimum capital adequacy ratio of more than 4 percent," Sjahril explained.

Bambang said the delay would also give the evaluation teams more time to check the banks records and the integrity of owners and management, to ensure that all banks escaping the massive cleanup would really be able to sustain viable operations.

"We are preparing a package of measures with such complete details that by the time we announce them there will no longer be any questions about the fairness, transparency and credibility of our decision," Bambang said.

"We know how crucial will be the decision we are preparing to restore public trust in our baking industry. We therefore are doing our best to avoid even the slightest doubt and smallest mistake," he said.

Bambang said he realized that another botched handling of the banking crisis would entirely wipe out whatever public trust still remained in both the government and monetary authorities.

However, analysts and several officials still could not accept that technical grounds were the primary reason behind the delay of the long-awaited announcement.

Farid Harianto, deputy chairman of the Indonesian Bank Restructuring Agency (IBRA) insisted on Saturday that President B.J. Habibie's last week decision on delay was prompted also by political considerations.

He said the delay was a setback to the government bank restructuring program both in terms of credibility and cost because a one-month postponement in the liquidation process would cost the banking industry some Rp 7.5 trillion (about US$882.35 million) in losses incurred by negative interest spreads.

"Political motives are behind the delay. What do the political decision-makers really want? From the technical side, we don't have any problem," he told a seminar held by the Indonesian Economists Association.

Former oil and energy minister Subroto shared the same view, saying that the strongly criticized delay was made to preserve the status quo of the current administration ahead of a general election in June.

He pointed out that the government would not dare to close many banks as this would create large unemployment ahead of the general election.

"The political decision-makers want to preserve the status quo through economic means. It's as simple as that," he told the seminar.

Coordinating Minister for Economy, Finance, and Industry Ginandjar Kartasasmita announced on Friday that the closing down of a number of banks, scheduled for Saturday (Feb. 27), was postponed for at least two weeks to allow more time for evaluation teams and bankers to produce a fairer, more transparent and accountable decision on the bank restructuring process.

Finance Minister Bambang Subianto was initially surprised and declined to comment on Ginandjar's morning statement, but said a few hours later that the delay was made in order to give the steering committee, which comprises senior economic ministers, enough time to evaluate the banks' business plans.

Banks are required to submit a business plan in order to be able to join the government bank recapitalization. The business plan contains measures including on how to lift the capital adequacy ratio (CAR) to a minimum level of 8 percent by 2001, settle problem loans, and solve the legal lending limit.

Farid, however, disclosed that evaluation of the business plan should not be considered as a complex process.

"We're just evaluating whether the plan makes sense. That's all," he said.

Economists and bankers lambasted the decision to delay the bank closures, citing that the move would tarnish an already shaky confidence in the bank restructuring program and the overall economic reform programs.

The Indonesian Private Banks Association's chairman, Gunarni Soeworo, said in statement that the association regretted the government's inconsistency in its bank restructuring measures.

She said that this could further lower public confidence and cause a massive run on banks, which, in turn, would prove expensive for the government.

Economist Anwar Nasution also criticized the inconsistency, saying that it was a major setback in the efforts to boost the public's confidence, which was an essential factor in the country's economic recovery.

Economist Faisal Basri concurred. "I've just received a fax from New York that (the policy) has caused the government's credibility to tumble in the eyes of foreign investors."

Former finance minister Fuad Bawazier doubted the government's argument that technical preparation was the reason for the delay.

"In past liquidation measures, the preparation didn't take a long time," he said.

"The delay only adds credence to rumors that there have been external pressures in the process (to prevent certain banks from being liquidated)," he said.

The long-awaited announcement on the bank cleanup, promised by Habibie to be made on Feb. 27, was set to disclose which insolvent banks would go down, which ones would be qualified for the government-sponsored bank recapitalization program and which banks were considered sound.

Under the government bank recapitalization program, designed to lift the banks' CAR to the minimum level of 4 percent, the government would provide up to 80 percent of the recapitalization funding.

CAR is the ratio between capital and risk-weighted assets.

The delay seems to validate rumors that bankers have been busy lobbying senior ministers to save their banks from being liquidated.

The fact that the final decision of the bank recapitalization program would be decided by the President's economic and finance resilience council failed to stave off the rumors.

Businessman Aburizal Bakrie, who also owns several banks which need to be recapitalized, denied on Saturday that he was involved in the decision-making process for the bank restructuring measures.

Aburizal is a member of the economic and finance resilience council. (rei/rid)