Recapitalized banks must focus on productive sectors

Recapitalized banks must focus on productive sectors

NUSA DUA, Bali (JP): Recapitalized banks should focus on
lending to productive sectors to help lift the country out of the
present economic crisis, banker James T Riady said here on
Tuesday.

Speaking on the sidelines of a business forum here, James said
banks should not repeat past mistakes by investing too much money
in certain sectors while ignoring other areas.

"In the future, after recapitalization, banks need to
concentrate on sectors with more potential, such as the export,
import substitution, agricultural, natural resources and tourist
sectors," he said.

The government is expected to begin its massive bank
recapitalization program after the House of Representatives
approves the recapitalization funding later this week.

James, deputy chairman of the Lippo Group, said banks were
currently suffering because in the past they often made judgment
errors when selecting sectors to invest in, overinvested in some
sectors and neglected other, more prospective sectors.

In the past, banks also engaged in the practice of corruption,
collusion and nepotism. "This helped create opportunistic
businessmen," he stated.

Banks also often borrowed funds which they did not have the
capability to repay.

An even more damaging practice banks engaged in was borrowing
short-term money to lend for long-term investments.

"Despite the fact that banks were successful in fostering
businesses, they failed to uphold prudential banking practices,"
he said.

James stated that if banks could channel public funds to
productive sectors it would help the country emerge from the
economic crisis.

When domestic banks begin to invest funds in the real sector,
it will encourage both domestic and foreign direct investment,
which has dried up since the onset of the crisis in mid-1997, he
said.

James also said that with increased investments in productive
sectors, economic growth would return to positive territory in
the second semester of this year.

"There could be cause for the second semester to show zero
growth or even a little positive growth," he stated.

Privatization

He noted that the privatization of state firms would also help
Indonesia's economy recover by inviting an inflow of foreign
capital.

Sofyan A. Djalil, an assistant to the state minister for the
empowerment of state firms, agreed, saying that privatization
should serve as the driving force behind an economic recovery.

He noted that the successful privatization of state firms
would restore foreign investors confidence in the country's
economic prospects.

He said he was upbeat that the government would collect the
targeted US$1 billion from the sale of its stakes in seven state
firms by the end of March, the end of the current 1998/1999
fiscal year.

The government has so far raised $121 million from the sale of
a 14 percent stake in cement maker PT Semen Gresik to Mexico's
Cemex SA. The government collected another Rp 500 billion ($56
million) from the sale of 100 million of its 180 million shares
in food giant PT Indofood Sukses Makmur.

In addition, the government was expecting more than $200
million from the sale of a 49 percent to 51 percent stake in PT
Jakarta International Container Terminal, a unit of state-owned
port operator PT Pelabuhan Indonesia II.

Sofyan said the government was currently negotiating a
possible sale with Grosbeak Pte Ltd., a unit of Hong Kong's
Hutchison Whampoa.

He also said the government had received initial bids from a
number of foreign port operators for a unit of PT Pelabuhan
Indonesia III.

Foreign telecommunications investors were currently conducting
a due diligence on international call operator PT Indosat. After
the due diligence, they will make their bids for the company.

Other foreign investors are currently conducting due
diligences on state plantation firm PT Perkebunan Nusantara IV,
airport operator PT Angkasa Pura II and general mining firm PT
Aneka Tambang.

"We are confident that the privatization process for these
firms will be completed by the end of March," Sofyan said. (rid)