Govt delays bank closures

Govt delays bank closures

JAKARTA (JP): The clean sweep of banks, scheduled for
Saturday, was delayed by President B.J. Habibie at the eleventh
hour, lending credence to rumors that bankers have been busy
lobbying ministers and the President to save their banks from
liquidation.

Coordinating Minister for Economy and Finance Ginandjar
Kartasasmita announced on Friday that the postponement was to
allow more time for evaluation teams and bankers to produce a
fairer, more transparent and accountable decision on the bank
restructuring process.

"There is no pressure from any party. The delay -- at least
for two weeks -- was deemed necessary, given the large number of
banks to be assessed," he said after meeting with President B.J.
Habibie.

However, Minister of Finance Bambang Subianto, who was
attending a House of Representatives plenary session on the
1999/2000 state budget on Friday morning when Ginandjar announced
the delay, appeared surprised by the decision.

During a break in the session, Bambang acknowledged that a
ministerial steering committee meeting on bank restructuring,
which began Thursday afternoon and continued late into the night,
had not completed preparations for the package of measures due to
be launched on Saturday.

Following a special meeting Bambang held with House Commission
VIII for the state budget and banking after the plenary session,
he conceded "we decided to delay the process by two weeks to give
us more time to evaluate business plans submitted by banks which
is one of the requirements to receive recapitalization funds from
the government".

"We need more time because most banks submitted their business
plans close to the Feb. 15 deadline. As you may know, we have
been unusually busy during the last two weeks. Ginandjar and
Sjahrir (the central bank governor) attended meetings overseas,
while I was tied up at the House for the draft state budget
deliberations," Bambang added.

On Thursday evening, the central bank managing director,
Soebarjo Joyosumarto, announced that Saturday's bank cleanup
would go ahead as scheduled.

The long-awaited announcement on the bank cleanup was set to
disclose which insolvent banks would be closed, which ones
qualified for the government-sponsored recapitalization program
and which banks were classified as sound with more than 4 percent
capital adequacy ratio (CAR).

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

The delay seemed to validate rumors which, over the last few
weeks, indicated that many bankers were lobbying ministers and
the President to save their institutions from liquidation.

Ginandjar said the steering committee meeting on bank
restructuring, held at the central bank, was also attended by
representatives of the World Bank, Asian Development Bank and
International Monetary Fund.

"We reported the results of the meeting to the President on
Thursday afternoon," Ginandjar said.

Susiati B. Hirawan, director general of financial institutions
at the finance ministry, disclosed that until 8 p.m. on Thursday
the schedule for the announcement on the bank restructuring was
unchanged.

Procedure dictates that the results of the steering
committee's meeting should be reported to President B.J. Habibie,
who would then discuss them with his advisers (members of the
Economic Resilience Council), Susiati said.

"Yes, I think that might be the case," Susiati said, when
asked whether the decision on the delay occurred when Habibie met
with his advisers.

The council, chaired by the President, includes the finance
minister, the central bank governor, the coordinating minister
for economy, finance and industry, the state minister of state
enterprises, chairman of the National Development Planning Board
and Aburizal Bakrie, chairman of the Bakrie Group and president
of the Indonesian Chamber of Commerce and Industry.

Preliminary results of a comprehensive due diligence
formulated in cooperation with foreign auditors, show that 62
banks fully meet the minimum CAR of more than 4 percent (Category
A), 66 banks have a CAR of minus 25 percent to positive 4 percent
(Category B) and will be recapitalized if they meet certain
requirements and 38 others, with a CAR of below minus 25 percent
(Category C), will be closed.

In a related development, the World Bank's vice president for
East Asia, Jean Michel Severino, praised on Thursday the
government's decision to delay the bank closure announcement.

Severino said in Seoul that the Indonesian government had
consulted the World Bank and IMF in relation to the rescheduling.

He said it was very important that the government deliver a
sound announcement.

"We understand that it has been difficult for (the government)
to fully prepare itself for the liquidation program," he told
Indonesian journalists on the sidelines of a conference on
democracy, market economy and development in the South Korean
capital.

He said the decision concerning bank closures should be
clearly understood and explained and be based on sound technical
reasons.

The government should provide data and strong rationale
regarding the banks to be liquidated, and the closures should be
performed in a clear and transparent manner, he said.

He acknowledged that it might take time for the government to
announce its decision.

Speaking about the banking problem, Severino said the
magnitude of deterioration was so significant that no single step
would fix the problem.

"Liquidation is just one step of a long process," Severino
added. (rei/prb/spm/vin)