The story of former Coordinating Minister for Economic Affairs Ginandjar Kartasasmita, closing 16 banks to calm the 1998 monetary crisis 1

JAKARTA - The Coordinating Minister for Economic Affairs, Finance and Industry (Ekuin) era of Soeharto, Ginandjar Kartasasmita was at the forefront when the 1998 economic crisis took place.

The closure of 16 banks in 1998 was a drastic action taken by the government to dissect and clean up the banking system.

The decision was made from the results of an analysis of institutions that are fundamentally not viable to operate.

In his book titled Ginandjar Kartasasmita "Pengabdian dari Masa ke Masa", it is told that Ginandjar was asked by President Soeharto to restore market confidence.

In addition, international support was also considered a key to mitigating the crisis at that time.

When the rupiah value fell sharply, recovery became very important. Creditor countries emphasized that assistance could only be channeled through the International Monetary Fund (IMF).

"I received this message directly from US Treasury Secretary Robert Rubin, followed by Lawrence Summers, offering full support to improve Indonesia's relationship with the IMF, which at that time was in a bad state. High-level delegations from the US, Japan, Germany, IMF. World Bank, including Joe Stiglitz, came to Indonesia. Together with them, we drafted an economic recovery agenda," said Ginandjar as quoted from the book, Thursday, April 9.

After the communication was established, Indonesia signed a Letter of Intent (Lol) with the IMF, the latter on October 31, 1997.

A day later, the government closed 16 banks that were considered problematic.

According to Ginandjar, this step is part of his work priorities, namely bank restructuring.

The closure of 16 banks was a harsh action taken by the government to dissect and clean up the banking system.

Ginandjar explained that the banks that were closed were banks that no longer had the right to live.

The root of the problem is that banking regulations were too loose in the previous period, which allowed the establishment of banks with very little capital.

"At that time we had to close banks that were no longer entitled to live," he said.

These banks, he said, which operate with their own capital, are practically not functioning well, thus posing a major systemic risk amid monetary turmoil.

Although technically the closure of banks is the authority of Bank Indonesia (BI), in times of crisis, the Governor of BI is under the coordination of the Coordinating Minister for Economic Affairs, which was then held by Ginandjar.

The final decision to close the 16 banks was discussed and approved in the highest forum in the field of economics.

"This was decided in the Cabinet Meeting on Economic Affairs," he said.

The book also revealed that when 16 banks were closed, there was a sad side and a profitable side for Ginandjar. Because as the Minister of State for PPN/Head of Bappenas, his party was not involved in discussing it.

He admitted that he had never been asked to attend the Monetary Council meeting.

He was straightforward, during negotiations with the IMF, no "outside" ministers were involved including himself.

This condition, according to him, has a "loving and fortunately also" side, because although he is in a strategic position in the field of economy, he is not included in the circle of technical decision-making.

All, arguably confidential, no one ever knew negotiations were taking place between the government and the IMF.

According to Ginandjar, the ministers who negotiated with the IMF at that time were Coordinating Minister for Economic Affairs Saleh Afif, Finance Minister Ma'rie Muhammad and BI Governor Sudrajat Jiwandono.

Also present were government advisers Widjojo Nitisastro and Ali Wardhana, as supervisors of the negotiation process.

"Only once I was asked to sit in a meeting with IMF representatives at the invitation of Mr. Widjojo. However, at that time, we were not given any instructions about the seriousness of the existing problems," Ginandjar explained in the book.

The weakening of the rupiah exchange rate became the most painful symptom of the 1997-1998 crisis.

The rupiah fell freely, an event that paralyzed almost all the joints of the national economy.

The fall in the rupiah value has a direct impact on Indonesia's inability to trade internationally.

The national banking immediately lost credibility in the eyes of the world.

"Bank-bank Indonesia cannot open L/C (letter of credit) for imports because we are no longer trusted by foreign banks," he said.

Seeing the rupiah plunging, the economic team under the coordination of Ginandjar tried to restore stability.

The psychological figure they are trying to achieve is to bring the rupiah back below Rp10,000 per US dollar to a more realistic level and accepted by the market.

"At that time, we were really good," explained Ginandjar.

The recovery effort is the main focus.

Because Ginandjar realizes that a stable exchange rate is the key to restoring confidence, stopping capital flight and restoring the ability of national industries to operate again.

The rupiah crisis, in essence, is a crisis of confidence that must be combated with appropriate and targeted policies.

Regarding the weakening of the rupiah, Ginandjar took strategic steps.

The President, who at that time was held by Habibie, was tasked with restoring the economy and correcting the mistakes that had occurred previously.

However, the task given by the Head of State to him is not easy.

"I promise the President to do my best. By setting aside the various controversies that accompanied President Habibie and the appointment of a number of ministers, I immediately focus on dealing with urgent economic issues," he said.