Govt defends plan for bank recapitalization<\/p>\n
JAKARTA (JP): The government on Wednesday defended its costly
\nbank recapitalization program, saying that it was necessary to
\nrevive the crippled economy.<\/p>\n
State Minister of National Development Planning Boediono
\nwarned that the process of economic recovery would stall if the
\nbanking system could not function properly due to a lack of
\ncapital.<\/p>\n
\"Bank recapitalization is the key for our economy to grow
\nagain,\" Boediono told journalists before a meeting with President
\nB.J. Habibie.<\/p>\n
Echoing Boediono's statement, Minister of Finance Bambang
\nSubianto on Tuesday evening warned of a new economic \"disaster\"
\nif the recapitalization program was abandoned.<\/p>\n
\"Let's say we don't do it, what would happen then? Maybe you
\ncan ask yourselves, what would happen? There would be a
\ndisaster,\" Bambang said at a breaking of the fast meal at his
\noffice.<\/p>\n
He argued that if all problem banks had to be closed, the
\nremaining banks would not be able to service all business
\nactivities. If that happened, business transactions would fall in
\nnumber, unemployment would rise and inflation would soar, he
\nsaid.<\/p>\n
Moreover, if all problem banks were forced to close, the
\ngovernment -- under its blanket guarantee scheme for bank
\ndepositors and creditors -- would have to find even greater funds
\nto pay the closed banks' depositors and creditors.<\/p>\n
\"That's horrifying, isn't it?\"<\/p>\n
\"So, we don't have much choice. We can either go ahead with it
\n(the recapitalization program) or not. It depends on the people,
\nwe will do what the people want.\"<\/p>\n
\"If we don't do it, will the situation improve? No. The
\nsituation will get worse. But if we go ahead and do it, will the
\nsituation improve? Not definitely. It could either improve or get
\nworse.<\/p>\n
\"It depends if we can do it prudently or not. If we do it
\nprudently, I'm sure the situation will improve. But if it is
\ndogged by corruption, collusion and nepotism, then it is doomed
\nto failure.\"<\/p>\n
Bambang then went on to promise that the government would
\nexercise prudence during the process of bank recapitalization.<\/p>\n
He said that economic recovery in Indonesia would not be
\npossible without bank recapitalization and pointed out that banks
\nwould not be able to restructure domestic corporate debts unless
\nthey received fresh capital.<\/p>\n
By the end of this month, Bambang said, the government would
\ncomplete recapitalizing the state Bank Rakyat Indonesia, 15
\nprovincial development banks and a number of private banks.<\/p>\n
\"By the end of this month, these banks will be able to begin
\nrestructuring their corporate debts. We will then move to
\nrecapitalize other banks,\" he said.<\/p>\n
The government has said it plans to recapitalize at least 70
\nbanks at a total cost of Rp 257.5 trillion (US$43.3 billion). The
\nnew capital will help the banks towards a minimum capital
\nadequacy ratio of 4 percent, as required under law.<\/p>\n
The capital adequacy ratio is the ratio between equity capital
\nand assets.<\/p>\n
Under the plan, the government will provide up to 80 percent
\nof the funds required for recapitalization, while bank owners
\nwill be responsible for securing the remaining 20 percent.<\/p>\n
The government will fund the recapitalization program by
\nselling bonds to Bank Indonesia.<\/p>\n
Interest due on the bonds during the 1999\/2000 financial year
\nhas been placed at Rp 34 trillion. Rp 18 trillion of this sum
\nwill be funded out of the state budget and the remaining Rp 16
\ntrillion raised through the sale of assets belonging to problem
\nbanks taken under government control.<\/p>\n
Economists and members of the House of Representatives have
\nsaid the scheme is too costly given the financial difficulties
\nendured by the nation since the latter half of 1997.<\/p>\n
On Tuesday, the House asked the government to scale back state
\nbudget funds earmarked for the recapitalization program.<\/p>\n
However, Bank Indonesia governor Sjahril Sabirin said on
\nWednesday that the government was unlikely to back down and would
\ninsist that the program should go ahead unchanged. This, he said,
\nwas because the program would be ineffective if it was
\nunderfunded.<\/p>\n
If the government set aside a \"half-hearted\" amount of money
\nto recapitalize the banks, the program could fail altogether, he
\nsaid.<\/p>\n
\"It's like business. If a business needs 100 of something but
\nwe only give 25, then it will fail,\" he told journalists after a
\nmeeting with the chairmen of House Commission VIII for budget and
\nfinance.<\/p>\n
Sjahril said that the government expected to earn a return on
\nthe program after three years.<\/p>\n
\"In time, the economy should improve and the share prices of
\nbanks should rise. Then we will make a profit by selling them,\"
\nhe said.<\/p>\n
Sjahril said he was confident that the House would eventually
\napprove the budget for the recapitalization program.<\/p>\n
\"I am optimistic that the House will approve it because it is
\nthe best way forward.\" (rid\/das\/prb)<\/p>",
"url": "https:\/\/jawawa.id\/newsitem\/govt-defends-plan-for-bank-recapitalization-1447893297",
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