Banking on justice<\/p>\n
Although almost all agree that setting right the crippled
\nbanking industry is crucial to lead the economy out of its
\ncrisis, the government's bank recapitalization scheme is facing
\nstiff opposition from most analysts and the House of
\nRepresentatives. The proposed allocation of Rp 18 trillion of the
\n1999\/2000 State Budget for the program has come under fire during
\ndeliberations in the House, even from the dominant Golkar faction
\nnoted mostly for simply toeing the official line.<\/p>\n
It is extremely unfortunate that the element of the draft
\nbudget provoking the greatest controversy is the bank
\nrecapitalization plan so crucial for the eventual recovery of the
\neconomy.<\/p>\n
But the voice of dissent in the legislature is understandable
\non a number of points.<\/p>\n
The bone of contention against the recapitalization plan is
\nnot as much the amount of the costs as the botched handling of
\nthe banking crisis since early last year. It inevitably eroded
\nwhatever little public confidence remained in the government's
\nability to cope fairly and transparently with the moribund
\nbanking sector. The lack of public trust has made it extremely
\ndifficult for the government to make a better public case of the
\nurgent need for recapitalizing ailing banks.<\/p>\n
There are, we think, several perplexing questions which must
\nfirst to be straightened out to make the proposal palatable to
\ntaxpayers who bear the brunt of recapitalization costs.<\/p>\n
Foremost among them is why capital standards for the program
\nwere set so low -- covering institutions with capital adequacy
\nratios (CAR) ranging from minus 25 percent to 4 percent -- that
\nmore than 80 banks would qualify for a total recapitalization of
\nabout Rp 300 trillion.<\/p>\n
This lenient standard will not likely bolster confidence, both
\ndomestic and foreign, in the recapitalized banks since the
\ninternational minimum capital standard is already 8 percent.
\nQuite the contrary, given the enormous risks inherent in the
\ncontinuing political uncertainty and the questionable auditing
\nstandards in Indonesia, the minimum CAR should instead be set
\nhigher than the international level.<\/p>\n
Moreover, in view of the extreme lack of technical competence
\nin banking supervision, one of the main reasons behind the
\nbanking crisis in the first place, the number of banks should be
\nmade much smaller than current 200. The risk of failure in
\nbailing out so many banks is surely much bigger than focusing
\nlimited resources on salvaging the few with strong management and
\nhigh integrity.<\/p>\n
The government may argue that raising the capital standard
\nrequirement would put most banks into liquidation at a huge cost
\nand a big risk of triggering a new wave of massive runs on almost
\nall banks, including those already with more than 4 percent CAR.<\/p>\n
But pumping another Rp 300 trillion into so many ailing banks,
\non top of the Rp 116 trillion they still owe in emergency
\nliquidity support from the central bank, would be a grave affront
\nto the public's sense of justice. It raises the question whether
\nthe government is protecting depositors or simply bailing out
\nbank shareholders, many of whom are accused of violating the
\nlegal lending limits and perceived to be engaged in underhanded
\nrelationships with political leaders or key officials.<\/p>\n
The sense of justice also requires the government not only to
\ndisclose but deal firmly with those -- be they directors or
\nborrowers -- responsible for bankrupting the six state banks now
\nneeding more than Rp 136 billion in recapitalization in order to
\nsurvive.<\/p>\n
Finance minister Bambang Subianto's warning that if the banks
\nare not recapitalized the impact could be disastrous makes plain
\neconomic sense. But recapitalizing so many ailing banks,
\nincluding those whose management and shareholders are notorious
\nfor their lack of integrity, is not only economically insensible
\nand highly risky, but also a gross imposition on taxpayers
\nultimately footing the bill.<\/p>",
"url": "https:\/\/jawawa.id\/newsitem\/banking-on-justice-1447893297",
"image": ""
},
"sponsor": "Okusi Associates",
"sponsor_url": "https:\/\/okusiassociates.com"
}