Ignore rumors, bank deposits safe: BI chief

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)