Kadin calls for quick mergers, acquisition of ill banks

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)