RI needs to strengthen financial sector: WB

RI needs to strengthen financial sector: WB

JAKARTA (JP): Indonesia is not another Thailand but needs to
strengthen its financial sector and address competitiveness and
reputational concerns to recover from the regional currency
crisis, the World Bank said yesterday.

The bank's country director for Indonesia Dennis de Tray said
at a seminar here that Indonesia was different in very important
dimensions from Thailand and yet in some sense investors saw
Indonesia "as a sort of Thailand".

"That's a problem of information and we need to get the
message out that this is a quite different and much firmer, much
better-managed economy than Thailand's," de Tray told journalists
after the seminar.

The rupiah and other Southeast Asian currencies have been
under attack following the devaluation of the Thai baht. The
rupiah has lost about 20 percent against the U.S. dollar since
then.

Indonesia differed from Thailand because it had a lower
account deficit, less short-term financing, better reserve
management policies, less exchange rate appreciation and better
recent export performance, he said.

"But there are disturbing similarities," de Tray conceded,
citing weak financial sectors, competitiveness concerns and
reputational concerns.

But de Tray said Indonesia's banks and financial institutions
were still in better shape than their Thai peers.

"The financial sector is by no means in the same kind of
difficulty that the Thai sector is. It is a much healthier
financial sector," he said.

He said that Indonesia's financial sector, like any other
financial sector in the region, had been subject to shocks and
would find itself in more difficulties than before.

"It is still going to take some time to work through the
effects of high interest rates and the rupiah's depreciation," he
added.

He said the government firstly needed to deal with financial
sector problems to restore investors' confidence in Indonesia.

"The government needs to move more quickly and firmly to
reassess the quality of the elements of the financial sector,
particularly the banking sector," he said, arguing that the
government's problem had been in keeping up with the growth in
the financial sector.

The government should help banks that could be helped and
liquidate others. "Fix the fixable, close the rest," he said at a
leadership seminar.

This should be followed by regulatory reforms. He said the
government should "launch a strong and credible program to
strengthen bank supervision so that this doesn't happen again".

On other reforms, he said the government should "take on some
sacred cows", remove export restrictions and accelerate
deregulation in the real sector.

Micro-reform of this nature would help repair negative
perceptions of the country and complement its already reasonable
macroeconomic management.

He said one of the ways of improving Indonesia's image was to
achieve greater transparency and make more credible information
available to investors worldwide.

"What worries investors? The quality of information they
receive, the 'levelness' of the playing field and the effect of
'political' decisions on the efficiency of investment," he said.

"Business as usual won't do. Indonesia needs a new cross
sector framework for private provision of infrastructure,
improved sector frameworks for private provision of
infrastructure and a uniform and evenhanded approach to the
reform process," he said. (rid)