Govt set to close 31 banks tomorrow

JAKARTA (JP): The government is expected Saturday to close down 31 insolvent banks and to take over at least 11 others under a massive multi-billion dollar restructuring program.

A government source familiar with the bank clean-up process said that the number was much larger than the 17 originally recommended for closure by the monetary authorities.

"IMF Asia Pacific director Hubert Neiss seemed to be very piqued upon learning at a meeting with the bank restructuring ministerial team on Wednesday evening that only 17 banks would be closed," added the official, who insisted on anonymity.

But the final decision is to be made by President B.J. Habibie, he said.

"So anything could happen between now and the last minute before the announcement," he told The Jakarta Post, adding it was almost certain that this announcement, originally scheduled for Feb.27, would be made on Saturday.

He said that the business licenses of the 31 banks would be frozen, while between 11 and 17 other problem banks would be taken over by the government.

He did not clarify the criteria for banks to be taken over. The Indonesian Bank Restructuring Agency took over four troubled banks in August in order to prevent them from going bust because of their extensive networks and important roles in maintaining the country's payments system.

He added that 50 banks would be shut down if the criteria were strictly implemented.

Even on the basis of less stringent criteria, 44 banks should face the closure axe, according to the source.

The government has ruled that 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 they can come up with at least 20 percent of the recapitalization funding in cash.

Banks failing to meet these requirements will also be closed down.

The government announced in January that out of the country's more than 200 commercial banks, 66 had CAR levels that were eligible for recapitalization while there were 38 banks with CAR levels of below minus 25 percent. The remainder had CAR levels of more than 4 percent.

The government's bank recapitalization program has come in for strong criticisms, particularly after the two-week delay in the announcement of the closures.

This delay has raised concerns that the government has surrendered to lobbies by well-connected businessmen to prevent their banks from being closed down.

Neiss, who arrived in Jakarta on Tuesday, was disappointed by the delay, saying that he expected no further hitch as it would only have a negative impact on the crisis-hit economy in the form of a further slide in confidence.

"Neiss was really put out when the ministerial team proposed on Wednesday evening that only 17 banks would close down. He then ran through the complete list of 50 ailing banks and pointed out those which must be closed down," the source said.

Neiss met with several senior economics ministers at the office of the Coordinating Minister for Economy, Finance and Industry Ginandjar Kartasasmita to make a final review of the bank restructuring measures.

The IMF is organizing a US$43 billion bailout for Indonesia. The fund has already disbursed some $9 billion from its own commitment of $11.3 billion.

It is expected to disburse another $1 billion if its board of directors approves the letter of intent, which has yet to be completed by the government.

Ginandjar said on Wednesday that the letter of intent would be submitted immediately after the launching of the bank restructuring measures.

Meanwhile, economist Faisal Basri told a seminar on Thursday that the recapitalization program would likely not achieve its objectives because the government was "interfering too much."

He referred particularly to the delay in the announcement of the liquidation measures.

He said that this delay was caused by "behind the scenes lobbying by senior officials and their favorite bankers."

The government and many others had politicized the recapitalization issue into an "indigenous and non-indigenous bankers" issue ahead of the June general election, Faisal said.

"It is OK to adopt a populist economy. But why should we defend an indigenous, politically-well connected but bad banker and remove a good non-indigenous one. This populist attitude will destroy the order of our economy...," Faisal added.

He added: "Transparency is vital if the government is to gain support for this costly program, and a sound banking industry is crucial for leading the economy out of its present crisis."

There has been talk that the delay in the liquidation announcement was to give more time to banks owned by indigenous businessmen to bail out.

A leading indigenous banker was believed to have threatened Habibie that he and his business associates might withdraw their support for him in the upcoming election if his bank was to be closed down. (rei/gis/02)