Indonesia Closes 7 Private Banks, Puts 7 Others Under Management

In an effort to shore up its wobbly financial sector, Indonesia closed seven debt-ridden private banks on Saturday and placed another seven under the management of an independent restructuring agency.

The perilous state of the banking industry is regarded as a major factor in Indonesia’s deep economic crisis, which has resulted in the collapse of its currency, soaring inflation and mass unemployment.

Several of the banks are linked to members of President Suharto’s family as well as to a Cabinet minister close to the president.

Critics have charged that Suharto’s relatives and associates have made fortunes under the patronage of Suharto, who has governed for 32 years.

The announcement comes as officials from Indonesia and the International Monetary Fund put the final touches on new terms for a $43-billion program to bail out Indonesia in exchange for economic reform.

An agreement on the program, which has stalled twice because of disputes over the pace of reform, is expected to be signed this week.

In announcing the closure and restructuring program, Finance Minister Fuad Bawazier appealed for calm. He said depositors’ money would be transferred to Indonesia’s largest state-owned bank and would be government-guaranteed.

Saturday’s move marks the second time in six months that Indonesia has closed private banks it has judged as insolvent. In November, on the IMF’s advice, it shut 16 banks. It later promised to merge or dissolve more.

Also Saturday, environment ministers from the nine-member Assn. of Southeast Asian Nations meeting in Brunei agreed on a package of measures to combat smog from Indonesian forest fires--many set deliberately to clear land--and avert one of the century’s worst ecological disasters.

In a statement released after the meeting in Brunei’s capital, Bandar Seri Begawan, the ministers proposed containing the fires in East Kalimantan rather than attempting to put them out.

They planned to establish two special firefighting units for Kalimantan and Sumatra/Riau, hotbeds of the fires that have sent smoke over much of the region, causing serious smog and health problems.