New banking measures 'not enough'

JAKARTA (JP): Banking measures taken by the country's financial authorities last week are not enough to reassure investors that the government is serious about restructuring the ailing industry.

The Center for Strategic and International Studies executive director, Mari Pangestu, said investors still doubted the government's seriousness, given the lack of a clear scenario and timetable to further clean up the troubled banking sector.

The government has yet to provide further details on what to do with the suspended and nationalized banks, and with banks outside the supervision of the state's Indonesian Bank Restructuring Agency (IBRA), she said.

"Investors are still waiting for details of the restructuring process, including a timetable to monitor government consistency," she said.

Marie noted that the new banking measures would not immediately restore the shattered confidence in the sector because people would still be waiting for the implementation of the restructuring process.

In a long-awaited move, the government declared various measures Friday to clean up the messy banking sector, including to immediately freeze the operations of Bank Dagang Nasional Indonesia, Bank Umum Nasional and Modern Bank, and to nationalize the giant Bank Central Asia and Bank Danamon, and possibly medium-sized Bank Tiara and Bank PDFCI.

The seven banks had been earlier taken over by IBRA after they received massive liquidity support from Bank Indonesia of more than 500 percent of their capital to maintain operation.

Minister of Finance Bambang Subianto said Saturday that the government had no intention of controlling the publicly listed Bank Danamon, Bank Tiara and Bank PDFCI, but would restructure them before selling them to investors through private placements or the stock market.

The IMF hailed the sweeping move, saying the measures are proof of the government's recognition that the country cannot gain meaningful economic recovery without undertaking sweeping banking reforms.

"Today's measures are a significant step in the right direction. They address critical issues, and the IMF and the World Bank will continue to work closely with the authorities in strengthening the banking system," a IMF spokesman told Dow Jones Friday.

Businessman Iman Taufik, who is also a key executive of the Indonesian Chamber of Commerce and Industry, said the banking measures would boost foreign investors confidence that the government was serious about restructuring the sector.

"The moves will increase foreign investors' confidence to return to the country because one of the prerequisites to reviving confidence has been implemented," he said, adding that the other preconditions are security and the new bankruptcy law, which was officially introduced last week.

Mari said that in addition to the monitoring issue, the restructuring process must be implemented lawfully to gain public support.

"The role of the law will be very important to investors. There mustn't be any discrimination," she said.

Several bankers and analyst were confounded with the criteria for bank suspensions and takeovers, especially on the decision not to freeze the operation of the troubled Bank Danamon, which was deemed as bad as the other three suspended banks.

Mari also said that the government must provide clear plans for banks outside IBRA, especially what needed to be done on healthy banks to pioneer confidence building in the banking sector.

"The public expects the healthy banks to have normal operations again," she said, pointing out that the year-long economic crisis has put all domestic banks in a poor category.

She added that a scenario of non-IBRA banks, which may not be able to fulfill the new 4 percent minimum capital adequacy ratio by the end of this year, should also be put on the table.

"Will these banks have to enter IBRA as well?" she asked.

IBRA was installed early this year with a mission to rebuild ailing banks and guarantee depositors' money in banks which have to be closed down.

Some 55 banks, out of about 200 domestic banks, are in the hands of IBRA.

The deposit guarantee has helped in preventing depositors from rushing the four banks taken over by the government; until Saturday there were no lines of panicked depositors in front of the banks' ATMs.

This was the opposite picture when the government closed down 16 banks in November. (rei)