Sunday November 2 6:51 AM EST
Indonesia to announce further reform measures
By Ian MacKenzie
JAKARTA, Nov 2 (Reuters) - Indonesia will announce further deregulation measures on Monday expected to focus on trade and manufacturing, after closing
down 16 banks in a quick start on an IMF-backed economic reform programme.
Banking sources said several of the banks liquidated on Saturday were associated with politically well-connected business figures, including members of President
Suharto's own family.
The banking and financial sectors are key areas for reform under a multi-billion dollar assistance package agreed with the International Monetary Fund (IMF),
World Bank, Asian Development Bank (ADB) and individual donors.
The deregulation measures to be announced on Monday were expected to cover the trade and manufacturing sectors, including tariff cuts to stimulate export
industries, banking sources said.
Economic analysts have estimated the overall value of assistance available to help Indonesia's economic recovery at between $30 billion and $40 billion over three
years.
Closing the banks was a gesture on the part of the government, but much more needed to be done to clean up the banking sector, one analyst said.
Indonesia went to the IMF and the other organisations in early October to stabilise the tumbling rupiah and restore confidence in financial markets, battered by the
currency turmoil across Southeast Asia.
Stephen Rogers, head of research for UBS Securities, said: ''...these banks are very small and it is questionable whether some of them would have survived
anyway.
''We need greater policing of the financial sector, more adherence to Bank Indonesia (the central bank) rules, more transparent disclosure.''
Finance Minister Mar'ie Muhammad, announcing the closures, said the banks were ''insolvent to the point of endangering business continuity, disturbing the overall
banking system and harming the interests of society.''
He said account holders would be reimbursed through state banks up to 20 million rupiah ($5,555) per account, covering 93.7 percent of depositors.
No figures were given on the amount of deposits or the indebtedness of the banks. None of them were listed on the stock markets.
Anticipating a possible run on banks, the finance minister also appealed ''to all members of society to remain calm.''
''It should be emphasised that all banks that are not liquidated will carry out their operation as usual.''
Jakarta's police spokesman was quoted in the Jakarta Post as saying police were on standby to handle the situation and prevent disputes from getting out of hand.
The IMF-led reform package could prove a bitter pill to swallow in a country already suffering from the effects of rampant bush fires, which have sent a choking
smog across the region, and one of the worst droughts in decades.
Prices and unemployment are rising, particularly in urban areas on Java, which is home to some 60 percent of the country's 200 million people.
Political analysts have said the authorities were concerned over the potential for social unrest, which is one reason why the state commodities regulator BULOG
was expected to retain tight control over rice prices and imports, while deregulating trade in other commodities such as soybeans, wheat and wheat flour from
January 1.
There is no accurate unemployment figure, but the number of people without jobs has risen with a cutback in construction, with a number of major projects being
put on hold after the rupiah's collapse.
The downturn in the economy would also hit employment and possibly year-end bonuses, important over December-January as it coincides with the Moslem
fasting month of Ramadan and the following Eid el-Fitr celebration.
Fuel and electricity price increases are also in the offing, which are likely to fuel inflation which the government has said it was determined to keep within single-digit
figures. Inflation in September was running at just under seven percent year-on-year.
Political analysts said President Suharto, faced with the weight of international donor opinion, had apparently decided to take a pragmatic approach to the need for
reforms -- wishing to preserve the economic progress on which he has based his 30-year rule.
In announcing the reform package on Friday, the government said it expected lower economic growth for the next two years -- predictions for 1997 at the start of
the year was 7.1 percent.
But it hoped to return to seven percent growth from the 1999-2000 fiscal year onward.
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