Indonesia Will No Longer Guarantee
Some Bank Deposits

July 19, 2002

JAKARTA, Indonesia (AP) -- Looking for ways to save money, the Indonesian government has announced plans to gradually phase out a costly program that guarantees depositors money when a bank fails, The Jakarta Post reported Friday.

The government introduced the guarantee plan in 1998 to help instill confidence in a banking sector hit hard by the Asian crisis. If a bank is shut down, the government normally covers all of its obligations including depositors' money.

The policy has helped avert a rush on ailing banks and revived confidence in domestic banks despite their weak financial conditions. But it has also saddled the cash-strapped government with a huge financial burden, including $18 billion in guarantees over the past three years.

The government plans to abolish this by February 2004, when deposits above $11,000 will no longer be guaranteed, The Jakarta Post reported.

Authorities, however, will continue to protect small depositors via a new deposit insurance plan.

While saving Indonesia money, the end of guarantees could prompt depositors to put their money in foreign banks.

No one from the country's Finance Ministry could be reached to discuss the proposal.

http://biz.yahoo.com/ap/020719/indonesia_banks_1.html