Govt set to close 31 banks tomorrow

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)