New banking measures 'not enough'

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)