RI bank reform on course, WB says

RI bank reform on course, WB says

SINGAPORE (Reuters): Indonesia is on track to reform its
banking system after sweeping measures to clean up the sector was
announced last month, a source at the World Bank told Reuters on
Friday.

"It's a huge task. My sense is so far they are, broadly
speaking, on track," said the Jakarta-based source, who was on a
visit in Singapore.

On March 13, Indonesia closed 38 banks and nationalized seven
under a program seen as a lynchpin of any economic recovery. Part
of Indonesia's crisis was blamed on bad banking practices.

The source said the main concern was whether the government
could stay on course to achieve its goal.

He said the key priority of the government was implementing
measures that had been announced, including ensuring liabilities
were met by closed-down banks, depositors were not inconvenienced
and bad assets were transferred to Indonesia's Asset Management
Unit.

"Implementation, implementation is the key," the source said,
adding other actions included ensuring that banks that had been
taken over had developed restructuring plans and these were
subsequently being implemented.

"It requires sustained efforts. It's too early to tell whether
they will be able to stay on course," he said.

"These are all complex, difficult tasks and the problem is the
government has to be focused on carrying out the job."

On the possible impact on interest rates from the issuing of
trillions of rupiah bonds to finance the recapitalization
program, the source said it would be market neutral.

He said bonds issued by the government would be placed in
banks and nobody was going to buy it, therefore, there would be
no inflation effect.

"Details of the bonds are yet to be finalized ... It should be
coming out very soon."

He said the bonds would have no impact on interest rates as
they had been factored in by the market as the government had
already allocated substantial amounts of the budget to make
interest payments on the bonds.

Asked about interest rate trends in Indonesia, the source
said: "The trend is clear. It's heading down, provided inflation
remains in check and confidence continues to improve."

He was in Singapore for a meeting on corporate and bank
restructuring for East Asia.

The meeting assessed the progress of debt payments and
recapitalization in countries hit hardest by Asia's economic
crisis.

Overviews on the progress of restructuring and the financing
needs of various countries topped the agenda for discussions, a
copy of the program obtained by Reuters said.

Delegates at the conference, who included officials from
China's finance ministry and central bank, Indonesia's central
bank and Bank Restructuring Agency, Malaysia's finance ministry,
South Korea's Corporate Restructuring Committee, said the meeting
was timely.

"This roundtable discussion so far has been very good for us
and gives us a real world feel about the problems in Asia," a
representative from a multilateral institution who declined to be
identified, told Reuters on the sidelines of the conference.