Louise Williams, Jakarta – The Soeharto Government has urged the public not to panic at the opening of business today after announcing the immediate liquidation of 16 non-performing Indonesian banks under an international economic rescue package worth up to $US40 billion ($57 billion).
The Government revoked the licences of the 16 private banks over the weekend, meaning that all branches will be unable to open today following the announcement by the International Monetary Fund (IMF) of the bailout package for Indonesia, the world's second-largest.
The largest ever rescue effort, worth about $US50 billion, was put together for Mexico in 1995.
Indonesia's State Secretary, Mr Moerdiono, said police would be on alert for "possible mass panic" as frustrated depositors attempted to withdraw their money from the closed banks, or a "run" on other banks reflecting public fears about the banking sector.
Local radio stations reported that immigration officials had been ordered to prevent the owners, shareholders and managers of the liquidated banks from leaving the country.
Mr Moerdiono announced that a fund would be established to compensate small depositors up to a maximum of 20 million rupiah (about $7,900).
Early on Saturday morning, the IMF announced in Washington that it would provide $US10 billion, that the World Bank would put up $US4.5 billion and the Asian Development Bank $US3.5 billion to help restore confidence in Indonesia's battered economy.
The United States Government also announced a $US3 billion contribution, adding to an initial $US5 billion promised by both Singapore and Japan, as well as $US1 billion each from Australia and Malaysia.
Singapore has said that another $US5 billion is available and both Hong Kong and China have offered help but have not specified an amount.
The IMF announced a $US17.2 billion loan package for Thailand in July after the collapse of the Thai baht triggered the dramatic slide in regional currencies and stockmarkets.
The massive cash injection is linked to a three-year economic reform package for the Indonesian economy that includes a shake-out in the financial sector, which has long been burdened by an oversupply of under-capitalised banks, an end to some key monopolies and an austerity program to reduce government spending.
The announcement of the bank liquidations was the first step in a program of reforms demanded by contributors to the package.
"Even the US, which didn't lift a finger to help Thailand in its financial crisis, has come into this package," said a political analyst, Dewi Fortuna Anwar. "I think it is a recognition that within South-East Asia Indonesia is as important as China and if there is social and economic turmoil in Indonesia the whole region is affected."
The banking liquidations touch on one of the most sensitive issues in the Indonesian economy - the distortion of access to funds and markets in favour of the political elite. Most of the liquidated banks are small, non-performers which have attracted depositors with promises of high interest and other incentives.
However, the list includes Bank Industri, controlled by Mr Hashim Djojohadikusumo, the brother of Indonesia's powerful special forces commander, General Prabowo Subianto, who is also President Soeharto's son-in-law. Also to go is Bank Andromeda, controlled by the timber baron Mr Prayogo Pangestu. Bank Andromeda was formerly part-owned by President Soeharto's son Mr Bambang Trihatmodjo, who disposed of his share before the liquidations were announced.
The largest bank, Bank Pacific, with about 25O branches, was controlled by a close ally of President Soeharto, Mr Ibnu Sutowo.
The Central Bank Governor, Mr Soedradjad Djiwandono, said: "These banks are insolvent to the point of endangering their continuity, disturbing the overall banking system and harming the public interests."