IMF's chief criticizes RI banking reforms

JAKARTA (JP): The International Monetary Fund's First Deputy Managing Director Stanley Fischer on Tuesday criticized Indonesia for what he called a lack of clarity in reporting on its banking reforms.

Fischer made the statement in Tokyo when asked by the Dow Jones Newswires why the IMF delayed the signing of a new letter of intent with the Indonesian government.

"This (the issue of clarity) is certainly something that we thought would have been worked out by now," he said.

Fischer added that he hoped more delays would not occur, but stressed that "decisions had to be made" by the Indonesian government.

In a move that shocked analysts and even senior monetary officials, President B.J. Habibie ordered an eleventh hour delay of the massive bank closures last Friday for technical reasons, saying the closures would be suspended for at least two weeks.

In a related development, Bank Indonesia hinted in Jakarta on Tuesday that bank interest rates would remain high until the government-sponsored bank recapitalization program was completed.

The central bank's director, Miranda S. Goeltom, said pending the successful completion of the recapitalization program, interest rates likely would stay at their current level or even rise slightly.

Bank Indonesia's benchmark interest rate is now 37.2 percent a year for a one month paper.

"I don't expect any significant decrease in interest rates within the near future," she said on the sidelines of deliberations on the central bank bill by the House of Representatives.

However, Miranda does not foresee any sizable rise in interest rates because the central bank's benchmark interest rate, which has of late varied between 35 percent and 37 percent, has been moving in an increasingly narrow range.

"The curve is getting flatter," she said.

She warned, however, that the two-week delay of the bank closures had caused uncertainty in the banking sector and the interbank market.

"The delay has inflicted more pain to problem banks already drained of liquidity by massive withdrawals by depositors," she said.

It has become even more difficult for liquidity-strapped banks to obtain funds in the interbank money market because banks with excess funds do not want to risk lending to insolvent banks, she added.

The market is currently very segmented. Liquid banks refrain from lending to insolvent ones out of fear that their funds will be lost when the bank closures finally are announced in the middle of this month, she said.

Liquid banks prefer to place their funds in Bank Indonesia's short-term promissory notes to avoid any risks, she said.

"So the sooner the recapitalization process starts, the sooner banks will resume normal operations and interest rates will decrease," Miranda said.(das)