can be largely recovered. the funds that need to be provided for the re - capitalization may exceed 25 percent of gdp. although the costs of similar restructuring process in other countries do not differ much from what i cited earlier, and in fact the cost in some countries were much higher, the figure itself may raise eyebrows. but, is there any alternative? there is apparently no workable alternative one could think of. one extreme alternative is, of course, not to help the banks with re - capitalization. but, given the blanket guarantee provided by the government on deposits and other banks ’ liabilities, this is certainly much more costly. and it is more so since it will not provide any solution. many of the banks will likely go bankrupt, and the economy is left with no one to finance. 6. in the meantime, a question often raised to me as well to my colleagues in bank indonesia as to why the bank restructuring program came much later in the process to heal the crisis, since – the argument goes - if the condition was dealt with much earlier when the problems in the banking sector were not so deep, it would have been much easier to resolve the problem. the answer is clearly that bank restructuring program would make no sense if the exchange rate is still fluctuating wildly, inflation rates are very high, and interest rates are still producing large negative spreads. so we had to undertake the program of macroeconomic stability first before being able to produce a realistic program on banking sector restructuring. 7. as you know, the comprehensive program for macroeconomic stability, wherein monetary policy played a very important role, has born some fruits. → inflation ; exchange rates ; interest rates ; → conduct of monetary policy → prospect. ] we attribute much of the progress made in stabilizing the exchange rate and reducing inflation to the tight monetary policy and consistent set of macroeconomic policies we have implemented. a tight monetary stance was required to control the excess supply of money which entered the economy when bank indonesia had to provide extensive liquidity support to commercial banks, particularly in late 1997 and early 1998 when many banks experienced panic withdrawals. we implemented a program under which all sources of central bank money creation were carefully monitored and controlled and the excess liquidity already in the system was reabsorbed through open market operations using bank indonesia certificates ( sbis ). interest rates were by necessity high but the policy has been a success. since july currency in circulation has been on a declining trend. confidence in bank indonesia

’ s anti - inflation policy has steadily increased and, with bank deposit rates more attractive, holdings of currency by the public have been increasingly converted into bank deposits. bank indonesia ’ s open market operations have since 29 th july 1998, been conducted by a new system of sbi auctions under which a target amount of sbi instruments are auctioned weekly. another positive development i can report to you is that as inflation began to contract and the rupiah strengthened, we have been able to gradually ease our base money target which has allowed interest rates to gradually decline. the one - month sbi auction rate has declined from a high of around 70 % in early september to a low of 35 % in early january. the rate has now nudged up a bit to around 37 % at the last auction, but the overall significant decline in interest rates has provided a much - needed boost to the real economy. 8. i should also attribute the increased confidence in bank indonesia ’ s anti inflation policy to the much - improved transparency in the conduct of our monetary policy. beginning the second quarter of 1998 we regularly announce, on a weekly basis, the crucial monetary aggregate data and how they compare to the pre - set targets. mind you, these data, as well as many other information, are available to everybody to access through our website. 9. turning back to bank restructuring. first on the recapitalization program that was announced on march 13 th. this program had to be designed and implemented very carefully to assure its success, due to the following reasons : : ( i ) the re - capitalization program is likely to be costly ; ( ii ) the recovery of the economy relies upon the recovery of the banking system, and thus on the re - capitalization program ; ( iii ) the failure of the re - capitalization program would amount to the very costly delays to economic recovery. it was for this purpose that the current re - capitalization program carries the following characteristics. ( i ) the estimates of re - capitalization needs were done realistically, or perhaps conservatively through due diligence process conducted by international auditing firms. the conservativeness of the estimate will provide some cushion to the changing environment during the process of re - capitalization. ( ii ) the criteria for the banks to be eligible for re - capitalization were made very clear and transparent. ( iii ) the process of evaluation was conducted by four layers of committees, each layer to work independently of the others, and the meetings