Ignore rumors, bank deposits safe: BI chief

JAKARTA (JP): Bank Indonesia (BI) Governor Sjahril Sabirin urged the public yesterday not to worry about their savings despite rumors that some troubled banks would be closed down.

"What is important is that depositors need not worry about their funds because the government's guarantee remains," he said.

Sjahril refused to comment on whether the government would liquidate more ailing banks.

But he confirmed 54 banks were now under the close supervision of the Indonesian Banking Reform Agency (IBRA), a government- sponsored agency established in January to restructure the country's troubled banks.

The central bank and IBRA, which will hold a media conference this afternoon to explain its activities, were focusing their attention on improving the condition of the banks, he said.

"Our programs are also supported by the IMF," he said after meeting with IMF First Deputy Managing Director Stanley Fischer and Asia Pacific Director Hubert Neiss.

The central bank issued a statement Thursday that the public should not concern itself with reports connected to efforts to clean up the national banking system.

The statement followed market rumors of government takeovers of troubled banks or the liquidation of some banks.

Rumors emerged yesterday that 11 troubled banks would be shut down, causing a run on banks including several publicly listed banks.

Under the IBRA scheme, shareholders of the troubled banks are given an opportunity to recapitalize their banks. In the event that recapitalization does not take place, IBRA will assume full supervisory authority over it.

IBRA will consider how to restore such banks to a sound state, whether through recapitalization or through merger or takeover, at the least cost to the public.

IBRA's task of restructuring the nation's banking sector follows on the heels of a sharp plunge in the rupiah against the U.S. dollar and mounting bad loans.

Government sources said IBRA's former chairman Bambang Subianto initially planned that the central bank's money -- which had been injected into the troubled banks -- would be converted into government equity in the banks.

The total government injection was reported to range between Rp 60 trillion and Rp 115 trillion.

Under the plan, the banks would later be sold to investors, including foreigners.

The plan, however, was opposed by the bank shareholders, and Bambang was replaced by Iwan Prawiranata, a director at BI.

Sources said that Iwan's plan was to force the banks to merge and provide them with fresh capital, extended by the IMF, to clean up their operations. The merged banks would then repay the IMF-funding over a 10-year period.

In October, the central bank announced that total bad loans reached Rp 10.2 trillion.

B.S. Kusmuljono, an executive of the Federation of Private Domestic Banks (Perbanas) said earlier that the current level of nonperforming loans had soared to 30 percent of the outstanding loans.

The government has been pushing the country's 212 commercial banks to merge in order to meet the new minimum capital requirements of Rp 1 trillion, Rp 2 trillion, and Rp 3 trillion by the end of 1998, 2000, and 2003, respectively.

The IMF's team has been in Jakarta for three weeks to review Indonesia's economic reform programs, including banking sector reform.

The review will conclude whether Indonesia should continue to receive multibillion dollar funding from the IMF. (08)