Hollow promises

The government's reiteration last week of its determination to take legal action against bad bankers and bad debtors responsible for at least Rp 150 trillion (US$17.5 billion) in bad debts, or more than 40 percent of Indonesia's gross domestic product, rings hollow given its dismal performance in handling the banking crisis which has been plaguing this country since November 1997.

Sixty-four banks have been closed and 19 others taken over since the crisis began, and although Bank Indonesia has often stated most of the insolvent banks violated prudential banking regulations, none of the bankers have been brought to court. People are incensed that while the authorities have used hundreds of trillion rupiah in taxpayers' money to reimburse the depositors and creditors of the bankrupt banks, those responsible for robbing their own banks remain virtually untouched.

What rubs salt into the wound, deeply hurting people's sense of justice, is the fact that many of the former owners of the insolvent banks are also among the biggest bad debtors partly responsible for leading the seven state banks into technical bankruptcy.

The government has foreclosed on the assets of some bad bankers and bad debtors. However, this measure, besides being perceived as blatantly discriminatory against those who no longer have political backing, was often too late to salvage state funds because most of the assets had already either been sold or transferred to other domestic owners or moved overseas. In many cases, the value of the assets used to secure loans had been marked up so sharply that what funds could be recovered by the government was paltry.

The government promised the hallmarks of the massive bank restructuring program launched on March 13 would be full transparency and strong legal enforcement. However, the launch of the program was so lacking in technical details that people remained in the dark about such vital information as which of the ailing banks had violated prudential banking regulations, making them liable to criminal proceedings according to the law on banking, and which banks were closed simply because of the country's inimical macroeconomic conditions.

The central bank and the finance ministry reneged on their promise to make public the list of blacklisted bankers, arguing that such a disclosure would violate the principle of presumption of innocence and might make the authorities liable to litigation. This excuse, similar to various legal pretexts used by the authorities to defend their laxity in prosecuting those suspected of corruption, only further damaged the government's integrity. To fulfill its promise of full transparency, the central bank should have announced the names of banks violating prudential banking regulations, as well as the composition of their managements and shareholders.

The government not only failed to restructure the state banks' 20 largest debts on April 30 as scheduled, it did not even dare disclose the 20 biggest debtors even though the law on banking restricts the scope of the secrecy provisions to depositors.

People are even being kept in the dark about the 74 banks classified as sound last March because the fit-and-proper tests meant to assess the competence and integrity of their managements and shareholders and the evaluation of their business plans were not completed by the April 21 deadline.

The authorities have been so politically impotent and technically incompetent in handling the mess in the financial sector that a sound banking system so vital to reviving investment and leading the country to economic recovery has become more and more elusive.

It seems useless to even mention that the government has failed miserably in law enforcement and transparency, the bedrock of the financial system.

The government therefore has no other alternative but go all out now to complete proper and credible debt and bank restructuring within the next few months; that is if it is really serious about restoring investor confidence in the economy. Without credible debt and bank restructuring, all the other painful reform measures taken to lead the economy toward sustainable recovery and growth will have been rendered useless. And the economy will remain in the grip of paralysis.