Bank recapitalization plan questioned<\/p>\n
JAKARTA (JP): The House of Representatives urged the
\ngovernment on Tuesday to scale back the massive allotment in the
\nstate budget for the bank recapitalization program, and determine
\nthe institutions worthy of the assistance.<\/p>\n
During a budget hearing with finance minister Bambang
\nSubianto, the ruling Golkar faction in the legislature complained
\nthe proposed Rp 18 trillion (US$2.4 billion) allotment was too
\nburdensome on the 1999\/2000 State Budget.<\/p>\n
\"The Golkar faction expects the recapitalization program to be
\nselectively implemented and based on priorities,\" said Golkar
\nspokesperson Ery Chajaridipura.<\/p>\n
He believed priority should be on state banks, with assistance
\nto private institutions earmarked for those which displayed
\nprudent management.<\/p>\n
President B.J. Habibie last week unveiled the draft budget in
\nwhich the Rp 18 trillion would cover part of the coupon payment
\nof the bonds to be issued by the government for the purpose of
\nthe bank recapitalization.<\/p>\n
The total cost of the coupon payment will reach Rp 34
\ntrillion, Rp 16 trillion of which will be financed through the
\nsales of the banks' assets.<\/p>\n
Golkar, while acknowledging that restructuring and
\nrecapitalizing the beleaguered banking sector were key for the
\nrecovery of the country's economy, said the amount was too
\nexpensive and must be reduced.<\/p>\n
The other three factions in the House also called on the
\ngovernment to cut back the allotted spending.<\/p>\n
\"Why is the amount so large that it will cause too much burden
\non the state budget, which in turn will also become a burden for
\nthe people who are already suffering?\" said Indonesian Democratic
\nParty spokesman Bambang Mintoko.<\/p>\n
\"Why should the faults of those living luxuriously become the
\nresponsibility of the people. This is very unfair and absurd.\"<\/p>\n
The military faction also urged the government to set
\npriorities in its bank recapitalization program because the state
\nbudget should be concentrated on helping the poor to survive the
\n18-month-old economic crisis.<\/p>\n
The Moslem-based United Development Party declared the
\n\"recapitalization budget is too large\".<\/p>\n
House members have been more outspoken in criticizing the
\ngovernment following the end of the Soeharto regime last year.<\/p>\n
The government estimates the bank recapitalization will amount
\nto at least Rp 300 trillion, in which it will provide 80 percent
\nof the funding requirement through the issuance of the bonds. The
\nremaining 20 percent will be provided by the banks.<\/p>\n
Nearly 50 percent of the recapitalization cost will go to the
\nstate banks.<\/p>\n
Banks eligible to join the program are those with a capital
\nadequacy ratio (CAR) of between minus 25 percent and less than 4
\npercent. State banks will participate in the program although
\nmost have CAR of less than minus 25 percent.<\/p>\n
The government is requiring all of the country's more than 200
\ncommercial banks to have a minimum CAR level of 4 percent by the
\nend of March this year or face likely closure.<\/p>\n
CAR is the ratio between equity capital and risk-weighted
\nassets.<\/p>\n
The government has said that 61 banks are eligible to join the
\nrecapitalization program, 43 are ineligible unless they raise
\ntheir CAR level, and 62 banks will be exempted because their CAR
\nis more than 4 percent.<\/p>\n
Analysts warn the recapitalization cost may become much larger
\nif the economic assumptions of the budget fail to be realized,
\nparticularly amid the political uncertainty before the June 7
\ngeneral election.<\/p>\n
The government projects zero economic growth, an inflation
\nlevel of 17 percent and a rupiah-dollar exchange rate of Rp
\n7,500.<\/p>\n
The House considered the assumptions \"too optimistic\" and said
\nit would seek government explanations about its calculations.<\/p>\n
Many also doubt whether the banks could come up with the 20
\npercent funding necessary, particularly in the current economic
\nand social climate. (rei)<\/p>",
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