Hollow promises
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.
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.