T

he political noise and employee revolt against the planned acquisition by state-owned Bank Mandiri of Bank Tabungan Negara (BTN), the smallest of the four state banks, once again shows how difficult it is to achieve a political consensus for reforming grossly inefficient state-owned companies (SOEs).

 The planned acquisition is only a small, yet important, step on the long road toward banking consolidation and part of a broader strategy to make Indonesian banks more efficient and competitive.

Yet a more specific objective of the Mandiri-BTN merger is to build a national bank of international class in terms of assets, which is able to compete within the ASEAN Economic Community starting later in 2015. Even Mandiri, the country'€™s largest bank, cannot enter the club of the 10 largest banks in ASEAN, despite Indonesia being the largest economy in the region.

 Yet more importantly, Mandiri and BTN will build up strong synergy because BTN, as the bank specializing in mortgage financing, will have a wider access to bigger and lower-cost funds from Bank Mandiri and will, thus, be able to significantly expand its house financing.

A lack of low-cost, longer-term funds has so far been the biggest barrier to BTN'€™s financing operations because as a mortgage financing bank it cannot attract a broad base of depositors.

 We don'€™t see any reason why Mandiri'€™s acquisition of BTN would jeopardize the latter'€™s house financing programs, especially for those in the low-income bracket, because BTN could simply operate as a subsidiary of Bank Mandiri.

 Given the arduous process of realizing the acquisition '€” the corporate plan has first to be approved at an extraordinary shareholder meeting, then by the inter-ministerial Committee on Privatization and finally the House of Representatives, we do not think the process could be completed by October when the present government and House end their term.

But we strongly urge the upcoming government and House to support the Mandiri-BTN tieup. More consolidation and alliances could be good for the banking industry, as the country has too many small banks, which tend to be less efficient and more likely to run into debt problems when the times get tough. Only vested interest groups who want to use state companies as their cash cows are opposed to the reform program.

Indonesia has more than 120 city-based banks today, but could probably get along with less than 50. Bigger banks will become better capitalized and more consolidated. The consumers and businesses will be happier with a more solid banking system through which they can get cheaper financing.

But requiring the approval of so many different ministries, the House and employees would only make the reform program vulnerable to sabotage by vested-interest groups bent on maintaining state enterprises as their cash cows. What is urgently needed is a broad legal and political framework for the reform supported by clear-cut guidelines on a step-by-step process for merger or privatization.