Govt still undecided over state banks' merger plan

JAKARTA (JP): The government cannot put a firm date on when the operational merger of four troubled state banks will be completed, a senior official said on Wednesday.

The biggest question mark came from the huge amount of funds needed to recapitalize the banks and provide compensation to thousands of employees to be laid off, said Markus Permadi, an assistant to State Minister of the Empowerment of State Enterprises Tanri Abeng.

He added the merger process of Bank Bumi Daya, Bapindo, Bank Dagang Negara and Bank Ekspor Impor Indonesia into Bank Mandiri would depend on the development of the country's economy.

"The time (required) for the operational merger cannot be fixed yet," he told reporters following a meeting with other government officials.

"The problem of Bank Mandiri is quite complex."

Bank Mandiri was formed on Oct. 2 with the express purpose to clear up the difficulties of four of the seven state banks.

The government pledged last year to complete the operational merger of the banks by 2000 as an essential element of the country's banking reform program designed to restructure the crisis-hit economy.

The legal merger of the banks is expected to be completed in May this year.

Markus said recapitalizing and streamlining the banks were essential to create a strong and efficient integrated bank.

He added that all the activities required considerable funding which would have to be borne by the government.

"The banks have no money ... so the funding will have to come from the government."

Total bank recapitalization is estimated at about a third of the gross domestic product, or approximately US$35 billion to $40 billion, with about half of it to be used for the recapitalization of the seven state banks.

Markus declined to reveal how many employees would be laid off as a rational consequence of the merger process, but stressed it was essential to achieve efficiency.

Layoffs are viewed as the thorniest issue of the state banks' merger process. The banks' combined workforce is 25,500.

The government expects recently appointed Bank Mandiri president, Robby Djohan, to be able to repeat the relatively successful rationalization measures he carried out at national flag carrier Garuda Indonesia last year.

The senior banker laid off at least 3,000 Garuda personnel, providing severance packages of up to Rp 98 million per worker.

Tanri Abeng pledged last week that severance packages for the laid-off bank employees would be enough for them to start their own business.

Analysts cite another contentious issue within the merger process of dealing with nonperforming loans, most allegedly owed by the family of former president Soeharto and their associates.

The government has said it will either transfer the nonperforming loans to the Indonesian Bank Restructuring Agency's asset management unit, or allow them to be settled by individual state banks. (rei)