Psst, have you heard...?

Psst, have you heard...?

The massive deposit withdrawals at Bank Central Asia (BCA),
Indonesia's largest private bank, during the weekend exposes once
again the precarious condition -- if not the vulnerability -- of
our economy, and more specifically, of the banking system.

The rush at BCA was sparked by unsubstantiated rumors that
business tycoon Liem Sioe Liong, the bank's founder and majority
owner, had died, and that the bank was in deep trouble after the
closure of its office in Singapore. Not only was Liem alive, as
it became clear when he appeared in TV newsclips that same Friday
night, but on that same day, BCA announced its purchase of a
large stake at Danamon, another major private bank. In any case,
BCA has only a representative office in Singapore, and its
closure, even if it was true, would have had no bearing at all on
its performance.

But the fact that the feeblest of rumors triggered a massive
panic among BCA depositors calls for closer introspection by
banks and the monetary authority on the low confidence the public
has in the banking and economic systems. How else could such
rumors spread and gain currency so quickly among the public,
unless there was a crisis of confidence in the first place? These
are perhaps more important questions to address than the
questions of who started these rumors, and what motivated them?

As Indonesia moves more and more into a market-based system
which is fully integrated with the global economy, its stock and
currency markets are becoming more prone to rumors. In such a
system, rumors often drive markets up and down.

But the market usually has a way of correcting itself quickly
as soon as it becomes known that the rumors are unfounded --
although undoubtedly some people in the meantime make a big
killing from the volatility. In the United States and other
developed economies, unsubstantiated market rumors rarely have
any impact on the real sector of the economy because they are
quickly countered, and markets adjust themselves just as quickly.

The catchword in all these economies is transparency -- in the
market, in the economy and banking systems, and in the corporate
world -- which prevents wild rumors from ever gaining significant
currency. Transparency is lacking in Indonesia.

The Indonesian markets have already been tested several times
in the past two years by rumors about the deteriorating health of
President Soeharto. Each time, the market survived and recovered
as soon as the presidential palace announced the real condition
of the head of state.

These incidents, however, should have served as warnings of
things to come as Indonesia became more integrated with the
global economy. Some rumors have been known to be destructive, as
we ourselves have learned from the current monetary crises.

Market volatility is the downside of the economic system that
we have come to adopt. But it is no use blaming rumors. No one
can stop them. The only way to counter rumors or minimize their
impact is by playing the game to the fullest, and that includes
making the system as transparent as possible.

Public confidence in the monetary system can only be earned by
becoming fully transparent, instead of being more secretive, no
matter what the law says about banking secrecy. Transparency is
even more imperative in this Internet age -- where all kinds of
information, whether true or false, credible or not -- flow
freely and compete for people's attention.

The panic among BCA depositors this weekend was not only
fueled by the fresh rumors. Since the government announced the
closure of 16 private commercial banks on Nov. 1, rumors have
been buzzing that BCA had bailed out some of the banks originally
earmarked for liquidation by the government. BCA never confirmed
these rumors. Since it is not a publicly-listed bank, it is under
no obligation to disclose such moves. But as the largest private
commercial bank, it has a moral duty to be more transparent to
the millions of people who have entrusted their money with the
bank.

The closure of the 16 banks have already caused enough jitters
among depositors of other banks. It only takes the feeblest of
rumors to shake their confidence.

It is not important to know who started these rumors and for
what purpose, even if these are still possible to determine. The
chief lesson from this weekend's incident is that unless banks
open up their management, the next rumor could be destructive for
the banks, the depositors, and for the rest of the economy. In
short, transparency is in the interest of everyone.