Private banks start seeking govt guarantee

Private banks start seeking govt guarantee

JAKARTA (JP): Dozens of private domestic banks started seeking
Bank Indonesia's guarantee on their liabilities to lure back
depositors yesterday.

Masyhud Ali, president of Bank Putera Multikarsa, said
executives or owners of local foreign exchange banks signed
agreements with Bank Indonesia, the central bank, yesterday to
secure the guarantee.

In exchange for the guarantee, he said, banks were committed
to paying a half-year fee of 0.05 percent of the guaranteed
deposits and debts and limiting their loan growth to 2 percent
per month.

"I am happy with this government guarantee because
difficulties we face now could not be handled by each individual
bank. The problem is so big and in fact started from outside the
banking system," Mashud told The Jakarta Post.

Bank Indonesia banking supervision director Mukhlis Rasyid
said banks would still have time until Feb. 4 to sign an
agreement with Bank Indonesia.

He said the guarantee would apply equally to all state,
private and joint-venture banks -- but not foreign bank branches.

He said the fee collected from commercial banks would not be
returned to them but would be used to initiate the planned
deposit insurance system.

The government said Tuesday it will stand by troubled banks
and fully guarantee all deposits and debts, an announcement seen
by analysts as an important first step to strengthen the shaky
sector.

"It should restore confidence, but it takes time. It is just
the beginning, but it is definitely in the right direction," said
Tom Inglis, a banking analyst at ING Barings Securities
Indonesia.

He said the government should quickly implement the reforms by
issuing necessary rulings and guidelines on how troubled banks
should be treated.

Nyoman Moena, chairman of the advisory board of the Federation
of Private Domestic Banks, said the government would have no
problem in adjusting necessary rules.

"I don't see there would be any problem in implementation as
the government would have no problem in completing the measures
with necessary legal adjustments," Moena said.

Indra Bambamg Utoyo, vice chairman of House of Representatives
Commission VIII on state budget and finance, said the government
must succeed in implementing the newest banking reform program if
it did not want to see the rupiah sink further.

"I see this massive reform the last alternative available. If
this measure fails, I don't know if there is any other
alternative available," Indra said.

He said if the reforms were fully implemented, they would
restore public confidence in the banking system, people would
bring back their money into the system and foreign banks would
reconnect their broken credit lines with local banks.

Indra and Moena agreed that the government should complement
massive economic and banking reforms with reforms in other
sectors, especially in politics, to arrest the free fall of the
rupiah.

They said the continuing free fall of the rupiah was not
solely driven by economic matters but also by social and
political concerns.

"But don't forget about other factors, especially noneconomic
factors like politics. They are stronger in influencing the
financial market," Moena said.

"Noneconomic factors could easily overrule all massive
economic reforms introduced by the government thus far," Indra
said.

The rupiah closed at 9,850/10,800 against dollar in Jakarta
compared to an opening of 10,500/11,500 in the morning. The
rupiah's current level represents a 78 percent drop in value
since early July.

Both Moena and Indra predicted that commercial funds would not
return to Indonesia soon after the government gave blanket
guarantees on bank depositors and creditors, but after the March
presidential election. (rid)