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November 16, 2008

Indonesia's central bank insists banking sector solid

Indonesia’s $220-billion banking system "remains steady and solid" despite a scare after a small bank failed to settle interbank payments, Reuters quoted the central bank as saying Friday.

However, the monetary authority warned that growth in Southeast Asia's biggest economy next year will be far less than its forecast of 6.5 percent in line with the weakening global economy.

"I would reiterate again that the country's banking sector remains steady and solid, and is capable of serving the people at its best," central bank governor Boediono told a news conference.

"Bank Indonesia is ready to meet the demand of cash from the banking system to meet customers' demand. Bank Indonesia has also reinstated the short-term facilities to support the need for liquidity from the banking sector, especially under special circumstances," he said, without elaborating.

Later on Friday evening, the central bank held another news conference where officials repeated that none of the banks in the country faced liquidity problem.

Bank Indonesia Deputy governor Siti Fadjrijah said on Friday there has been rumours that two lenders in the country, PT Bank Danamon Tbk and PT Bank Artha Graha Tbk, faced liquidity problem.

"These two banks have been rumoured to have liquidity problems. That is not true," she said, flanked by senior bank executives, including from Artha Graha and Danamon.

Danamon's vice president director Jos Luhukay later also told reporters that Danamon did not face liquidity problems and had not requested liquidity assistance from the central bank.

"These rumours, including on Danamon, if not treated properly could be very dangerous. I urge people not to pass on the rumours to others, and mobile phone text messages about the rumours," Luhukay said.

The central bank said on Thursday a small lender, PT Bank Century Tbk, was having problems in settling interbank payments due to technical problems.

Bank Indonesia said operations in Bank Century had returned to normal on Friday and there was no threat to the banking sector.

Separately, Senior Deputy Governor Miranda Goeltom said economic growth in Indonesia would be lower than expected.

"Our economic growth forecast of 6.5 percent (for 2009) is no longer realistic. It will be far slower than that," Goeltom told the news conference.

Last week Bank Indonesia said it would be tough for the country's economic growth to top 6 percent next year given current global economic conditions.

Indonesia's quarterly economic growth has been averaging about 6 percent since the end of 2006 and the government is targeting full-year growth of 6.4 percent this year, despite the global credit crisis, in a bid to help reduce poverty and unemployment.

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