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Indonesia Shuts 7 Debt-Ridden Banks

April 5, 1998

JAKARTA, Indonesia (AP) _ In a move designed to show that it has become serious about reforming a crisis-ridden economy, Indonesia has shut the doors of seven insolvent banks.

Another seven banks with major problems will stay in business, but only under the management of a government-appointed restructuring agency.

The announcement late Saturday comes just days before the International Monetary Fund and Indonesia are expected to sign new terms for a $43 billion economic rescue package.

The bailout was first put together in last October and then was revised in January. But it has stalled two times since then over concerns that Indonesia has not gone through with promised tough structural changes to end its worst economic crisis in 30 years.

``Indonesia will implement its reform program in all seriousness,″ the official Antara news agency Sunday quoted Ginandjar Kartasasmita, Indonesia’s top economic minister, as saying.

Ginandjar has led three weeks of intensive negotiations over the bailout with the IMF.

The IMF is currently looking for extra money from the United States to replenish funds drained by multibillion-dollar bailouts of Indonesia, Thailand and South Korea.

Some lawmakers in Washington have criticized the IMF’s Asian policies. Others want Indonesia to commit to improving its human rights track record in exchange for international financial help.

The perilous state of the Southeast Asian country’s banking industry is regarded as a central factor in Indonesia’s deep economic crisis, which has resulted in the currency’s collapse, soaring inflation and mass unemployment.

Several of the banks have links to members of President Suharto’s family as well as to a Cabinet minister close to the president.

Critics say many of Indonesia’s economic problems stem a system which has made Suharto’s relatives and associates rich from monopolies and subsidies put in place during the president’s 32 years in power.

The IMF has insisted that many of these privileges be abolished so that the economy can be liberalized.

Indonesia, however, has complained that past IMF demands for a quick end to the many state subsidizes for basic items will make life miserable for millions of already poor Indonesians.

Both sides say they will soon announce a compromise solution.

Finance Minister Fuad Bawazier said the seven banks had been suspended and their operations frozen after they refused to heed repeated warnings about their unhealthy liquidity situation.

He said the closures were ``part of an overall strategy of restoring our economy, and they are part of out efforts to strengthen the rupiah’s exchange rate.″

The rupiah has fallen about 70 percent since Southeast Asia’s financial crisis hit Indonesia last July.

The action to shutter the seven banks marks second time in six months that Indonesia has moved against banks judged as insolvent. It shut down 16 banks on the IMF’s advice last November and later promised to merge or close more.

Since then there have been several runs on banks by nervous customers. The most recent was on Friday when several bank offices were besieged by hundreds of people wanting to withdraw funds.

To ease fears, Fuad said all depositors’ money in all 14 banks would be guaranteed by the government.

``They have nothing to fear. Their money is safe,″ Fuad said.

Indonesia is currently nervous about the potential of civil unrest. Earlier this year there were riots in some towns over rising food prices.

Last week police fired tear gas and used sticks to break up anti-government protests by students in Yogyakarta, 260 miles east of Jakarta.

The seven banks whose operations are suspended are: PT Bank Kredit Asia, PT Centris International Bank, PT Deka Bank, PT Bank Subentra, PT Bank Pelita, PT Hokinda Bank and PT Bank Surya.

Suharto’s cousin Sudwikatmono controls Bank Surya and partially owns Bank Subentra. Bank Pelita and Bank Kredit Asia is controlled by a brother of one of Suharto’s sons-in-law.

The seven banks to keep operating under the care of the Indonesian Bank Restructuring Agency are: PT Bank Dagang Nasional Indonesia, PT Bank Danamon Indonesia, PT Bank Umum Nasional, PT Bank Tiara Asia, PT PDFCI, PT Modern Bank and state-owned PT Bank Expor Impor Indonesia.

Bank Umum Nasional is controlled by Mohamad ``Bob″ Hasan, a close Suharto advisor and golfing buddy, who was appointed trade and industry minister last month.

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