Kadin calls for quick mergers, acquisition of ill banks

JAKARTA (JP): The Indonesian Chamber of Commerce and Industry (Kadin) called on the government yesterday to quickly help the mergers or acquisitions of existing unhealthy banks to prevent the country's banking industry from plunging into an abyss.

The chamber's chairman, Aburizal Bakrie, said at a hearing with the House of Representatives Commission VIII for state budget and finance that the government should also assure the public that it would not liquidate banks in the next two years.

"A quick decision on bank mergers and assurance about no more liquidation are very important to maintain public confidence in national banks and to prevent possible bank runs," Aburizal was quoted by Antara as saying.

Aburizal made the statement as the public was still hearing rumors about a second phase of bank liquidations after last week's closure of 16 insolvent banks.

Sources said the 16 closed banks were part of a larger group of about 70 banks identified by Bank Indonesia, the central bank, as needing a strengthening of financial health through mergers with stronger institutions within a fixed time period, or they could face closure.

Nevertheless, the government has never said the other banks were sound, but assured the public that there would be no more liquidation of banks.

Aburizal also suggested that the central bank and the Ministry of Finance continuously inform the public about the process of liquidations to maintain public confidence.

He said the government should also help transfer "good debtors" of the closed banks to state banks or private sound banks as they would become quality assets.

Aburizal also said the government should supply the market with more liquidity and further lower interest rates to revive the dying corporations.

Reform Package

The government's reform package, which also covered efforts to strengthen the financial sector, should help reduce intermediary costs and eventually cut interest rates, Aburizal said.

He also hailed the government's decisive move to boost exports and improve the efficiency of the local economy by dismantling the National Logistic Agency's monopoly right on wheat flour, garlic and soybeans.

"However, the freeing of the trade monopoly should be broadened to cover sugar, salt, cloves, oranges and other commodities whose trading is still heavily regulated," Aburizal said.

Economists Didik J. Rachbini and Rizal Ramli also hailed, with some reservations, the government's new reform package, which also freed cement pricing and cut import tariffs and export taxes.

"The deregulation package is good, but it does not guarantee whatsoever an end to the financial crisis," Didik said.

Despite major reforms, he said, many local corporations would still remain in a bind due to relatively tight liquidity and high interest rates.

They would not be able to afford high interest rates in the current economic downturn, he said.

Rizal Ramli said the reforms did not reflect that there was a crisis, because they would not start until next year, he said.

"If they are really serious about improving market competitiveness, they should start implementing the (reform measures) now," he said.

Rizal said the government's new reform to abolish Bulog's monopoly on certain commodities seemed to be a halfhearted move.

The measure itself was not firm enough, as it only loosened Bulog's control over the market instead of completely lifting it, he said.

Bulog will remain the exclusive distributor of wheat flour in the domestic market for the next three to five years.

This would only benefit certain companies, Rizal said.

"It looks as if some people will continue to party, even though it is already time to wash the dishes."

He declined to name the "party people".

He said the government's decision to abolish the set retail price of cement was a good step, but would likely have little effect on the consumers' price.

"Existing cement producers are already controlling big market shares, so that even if prices were to be formed by the market, these companies would still be able to control the prices," he said.

Didik supported Rizal's argument, saying that the market- mechanism of pricing cement would only benefit consumers if there was an anti-trust law in place.

"Since we don't have an anti-trust law yet, we need a production and distribution supervisory agency to check prices so that they won't punish consumers," Didik said. (das/icn/rid)