Gde Anugrah Arka, Jakarta – Indonesia said on Saturday it had closed 38 banks as part of a cleanup of the debt-laden industry considered crucial to efforts to rescue its ravaged economy.
Among them were three owned by children of former president Suharto who was forced to step down 10 months ago amid the country's worst political and economic crisis since he came to power some 30 years earlier.
The long-awaited reforms included the government take over of seven banks, and plans to recapitalise nine, Finance Minister Bambang Subianto said. "Today 38 banks have been closed," he declared.
The $30 billion banking reform programme is regarded as the lynchpin of any recovery for Indonesia's devastated economy.
The package won swift endorsement from the International Monetary Fund, which said it had worked together with Jakarta, the World Bank and the Asian Development Bank to ensure the scheme was objective, efficient and transparent.
"The IMF fully supports the package and its implementation," IMF Asia-Pacific director Hubert Neiss said in a statement.
"The package of measures announced by the government today marks a decisive breakthrough in the ongoing effort to restore a viable private banking sector in Indonesia," he said. The IMF is leading a $40 billion international bail-out package for Indonesia.
Subianto said the closed banks included 21 which had previously been considered candidates for recapitalisation. The 38 banks, he said, "are deeply insolvent and have no prospect of regaining financial viability. They have therefore been shut."
The seven banks taken over by the government were the largest among the group which had been seen as candidates for recapitalisation. They had "extensive branch networks and are being taken over in the public interest to minimise disruption to the payment system."
Officials have said that banks to be recapitalised would receive 80 percent of their recapitalisation costs from the government through a bond issue. Banks with a capital adequacy ratio over four percent are considered healthy. Subianto said there were 73 such banks.
Details of the scheme were originally due on February 27, but were delayed with just one day to go. This prompted claims that the government had caved in under political pressure from well-connected bank owners whose banks faced closure.
Among the banks to be closed were at least five listed banks. They were Bank Bira, Bank Umum Servitia, Bank Mashill Utama, Bank Bahari and Bank Ficorinvest.
The IMF's Neiss said the package should help Indonesia's stricken rupiah currency recover. Its serious depreciation in 1997 triggered a deep recession.
Last week the currency was trading at under 9,000 to the dollar. It was at around 2,400 when the crisis started in July 1997 and has lost around 70 percent of its value. The banks included to be recapitalised include several of Indonesia's best-known banking names.