Timor issue a threat to banks, trade flow

Business Asia, Sept 30, 1999

Indonesia's bank restructuring plans are under threat and the cost of rebuilding the nation's banks may rise even more due to the violence in East Timor, Moody's Investors Service says.

Threats of nations and organisations withdrawing aid from Indonesia has spooked investors and is likely to raise the bill for the country's bank recapitalisation, which Moody's already says could cost as much as a third more than the government's 550 trillion rupiah (US$68 billion) estimate.

The issue adds to Indonesia's economic problems and threatens the flow of trade in the BIMP-EAGA region.

Any withdrawal of aid, along with the fall in the value of the rupiah, is "bad news for the banking system", said Deborah Schuler, vice-president and senior analyst for financial institution ratings at Moody's Asia Pacific in Hong Kong.

The Indonesian government may have to spend more than 732 trillion rupiah to recapitalise the country's shattered financial system.

"The strains imposed on the finances of the government and Bank Indonesia by the bank rescue are enormous," said Moody's in a report on the Indonesian banking system.