The government and the business community, represented by the Indonesian Chamber of Commerce and Industry (Kadin), remain at odds over the need for a full guarantee on bank deposits and its impact on the economy.

At the recent height of the global financial crisis, the government raised the ceiling of deposit guarantee to Rp 2 billion (US$181,000) from the previous Rp 100 million, to bolster confidence in the financial sector.

However, Kadin is calling for the government to go a step further and instead provide guarantees on all bank deposits to avoid capital outflow.

"Liquidity tends to go to a safer place. With many of our neighbors already moving to guarantee all deposits, there is a strong possibility our depositors with more than Rp 2 billion will go to Singapore or Malaysia," said Kadin chairman M.S. Hidayat.

"We don't want a repeat of the 1998 (Asian financial crisis), in which we issued a full guarantee only after the fund outflow was already in progress."

Hidayat was referring to the massive capital outflow that took place when the country was mired in financial troubles, with economic and political uncertainty at their highest levels in decades.

Reports indicate the outflow amounted to more than $100 billion, with Singapore the main destination.

Hidayat said Kadin had submitted its request for a full guarantee to the government, and expected President Susilo Bambang Yudhoyono to announce the government's decision soon.

Vice President Jusuf Kalla, however, made it clear the full deposit guarantee was not urgent, at least for now.

Kalla said in addition to the fact it had the potential to be costly, the full deposit guarantee would only create a "moral hazard" among bankers, while the current scheme already covered a vast majority of depositors.

"The (current) scheme already covers 99.7 percent of our total number of depositors. So why the need for a full guarantee?," Kalla said last Friday.

There are more than 81 million depositors nationwide.

"In January 1998, we announced a blanket guarantee. You know what happened then. The capital outflow didn't stop, even when the interest rate at the time was over 60 percent. Eventually it was the government who had to bear the burden," he said.

But Hidayat remained hopeful over Kadin's proposal. He said Kadin also had the backing of Bank Indonesia and the Finance Ministry in the matter.

What the government needs, he added, was a sort of formula to help prevent abuses. For his part, Hidayat said, "I've also asked businessmen not to abuse the policy for our own sake."

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