Govt expects lower interest rates<\/p>\n
JAKARTA (JP): The interest rate for three-month Bank Indonesia
\npromissory notes (SBI) should drop to below 23 percent in two
\nweeks' time from the current 29.82 percent, according to Bank
\nIndonesia deputy governor Miranda S. Goeltom.<\/p>\n
\"The interest rate on the 3-month SBI will soon decline,\" she
\nsaid on Thursday on the sidelines of a seminar on banking.<\/p>\n
Miranda explained that the expectation of low inflation and a
\nstronger rupiah would allow a further decline in domestic
\ninterest rates.<\/p>\n
The rate will be used as the variable interest rate of the
\ngovernment bonds, which are expected to be issued on Friday, to
\nfinance the recapitalization of eight private banks and 12
\nprovincial development banks.<\/p>\n
In addition to the market interest rate, the bonds will also
\ncarry a fixed interest rate.<\/p>\n
Finance minister Bambang Subianto is scheduled to hold a news
\nconference on the bond issue on Friday.<\/p>\n
Miranda said the continuing decline in the domestic interest
\nrate environment would bring the interest rate level of the
\nthree-month SBI to near the level of the fixed rate of the bonds
\nby the end of this year.<\/p>\n
Several government officials indicated earlier that the fixed
\nrate would range from 10 percent to 15 percent.<\/p>\n
Miranda said that a further decline in the interest rate would
\nnot hurt the rupiah due to several reasons.<\/p>\n
She said the return on the local currency was still attractive
\nbecause of the low inflation level, combined with the influx of
\nforeign funds either through multilateral donors or private
\nsector investment.<\/p>\n
\"There are many factors that will allow a further decline in
\nthe domestic interest rate without hurting the rupiah,\" she said.<\/p>\n
\"And the relationship between the interest rate and the rupiah
\nis no longer as strong as in the past when the crisis
\nheightened.\"<\/p>\n
BI has allowed domestic interest rates to continue to decline
\nover the past two months without causing the rupiah to weaken.<\/p>\n
The interest rate of the benchmark one-month SBI promissory
\nnote is now 26.12 percent, compared to more than 36 percent two
\nmonths ago.<\/p>\n
The government announced on Wednesday that it would inject Rp
\n24.5 trillion (US$3.06 billion) out of the Rp 27 trillion funds
\nneeded to recapitalize eight banks.<\/p>\n
The banks are publicly listed Bank Internasional Indonesia
\n(BII), Bank Lippo, Bank Universal, Bank Bali, and nonlisted Bank
\nBukopin, Bank Prima Express, Bank Artha Media and Bank Patriot.<\/p>\n
The government will also inject Rp 1.23 trillion to
\nrecapitalize 12 provincial development banks from a total cost of
\nRp 1.5 trillion.<\/p>\n
The government will issue bonds to finance the
\nrecapitalization program, which is designed to lift the capital
\nadequacy ratio (CAR) of the eight banks to the minimum 4 percent
\nlevel, and to 8 percent for the 12 development banks.<\/p>\n
Bank Indonesia deputy governor Subarjo Joyosumarto said that
\nthe government would finance 90 percent of the recapitalization
\ncost of Bank BII, Bank Lippo and Bank Universal.<\/p>\n
He added the government also would provide more than 80
\npercent financing for the recapitalization of Bank Bali.<\/p>\n
Initially, the government planned to provide 80 percent
\nfinancing with the remaining 20 percent was to be provided by the
\nbanks' owners.<\/p>\n
But the bank owners could not come up with the 20 percent cash
\nrequirement in full because the recapitalization cost inflated
\nfrom the initial estimate of about Rp 14 trillion due to a
\npersisting negative interest rate spread problem. Only the
\nsmaller nonlisted banks managed met the cash requirement. (rei)<\/p>",
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