Bank recapitalization key to economic recovery<\/p>\n
JAKARTA (JP): Finance Minister Bambang Subianto on Friday
\ncalled for House of Representatives support of the state budget
\nappropriation to cover the costs of the bank recapitalization
\nprogram, arguing that it is crucial for the country's economic
\nrecovery.<\/p>\n
The bank recapitalization is pivotal for economic recovery as
\nstronger banks would be able to resume lendings that would grease
\nthe wheels of business, Bambang said.<\/p>\n
"Recapitalized banks will be in a much better position to
\nrestore the public's confidence in the financial system and would
\ngo a long way in recreating investor confidence in the economy,"
\nhe told a meeting with the House Commission VIII (finance,
\nbudget).<\/p>\n
Under this program, the government would put up 80 percent of
\nthe recapitalization funds of Rp 257.5 trillion (US$34.2 billion)
\nthrough the issuance of bonds. Bank owners will cover the
\nremaining 20 percent.<\/p>\n
Bambang refuted some estimates that put the costs of the
\nprogram to the state budget in excess of Rp 50 trillion, saying
\nRp 15 trillion would be a more accurate estimate.<\/p>\n
Many House members and analysts have criticized the
\nrecapitalization scheme as too burdensome on the state budget,
\narguing that the government should instead let insolvent banks
\ndie.<\/p>\n
At the meeting, the minister cited several key assumptions for
\npreparing the next budget starting in April.<\/p>\n
The minister said that as inflation was projected between 15
\nand 20 percent next year, compared to more than 75 percent this
\nyear, interest rates could likely decrease to 20-30 percent, down
\nsharply from as high as 70 percent in September and 38 percent
\nlast week.<\/p>\n
"Lower interest rates will surely stimulate economic
\nactivities," he added.<\/p>\n
Bambang projected a plus or minus 1 percent growth in the
\ngross domestic product next year, compared to an estimated
\ncontraction of 15 percent this year.<\/p>\n
"However, if the bank recapitalization program fails, all
\nthese projections may not materialize and our economy will remain
\nin a depressed state," he said in an argument to draw House
\nsupport for the necessary budgetary appropriation for the
\nprogram.<\/p>\n
He added that the next budget would assume international oil
\nprices in the range of between US$11.50 and US$12.50 per barrel
\nand a rupiah exchange rate of between Rp 7,000 and Rp 8,000 to
\nthe American dollar.<\/p>\n
The government will recapitalize 70 out of 166 national
\ncommercial banks, including six state banks, 49 private banks
\n(including four taken over by the government) and 15 provincial
\ndevelopment banks.<\/p>\n
The six state banks alone will take up Rp 136.44 trillion or
\n53 percent of the total recapitalization fund.<\/p>\n
Separately, banking analyst Sutan Remy Sjahdeni said on Friday
\nmost private banks would be unlikely to cover 20 percent of their
\nrecapitalization funds.<\/p>\n
"Those who can afford to do so may also be unwilling to put up
\nthe funds due to uncertainty over the security and political
\nconditions. Obviously, foreign investors are out of the question
\nat least until the year 2000," Sjahdeni said.<\/p>\n
Sjahdeni observed that many owners had completely lost hope
\nfor their banks even after recapitalization.<\/p>\n
"I'm sure many bank owners no longer have any confidence in
\nthe future of their banks, even after the recapitalization," he
\nsaid, adding some owners would probably prefer having them
\nliquidated. (das\/aly)<\/p>",
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