Recapitalization not enough to cure economy<\/p>\n
JAKARTA (JP): The government's bank recapitalization program
\nis not sufficient to revitalize the country's crippled banking
\nsystem and depressed economy, analysts have said.<\/p>\n
Hartojo Wignjowijoto, a senior economist at the Asian Pacific
\nEconomic Consultancy, said on Wednesday that the banking industry
\nnow was too ill to respond to \"medical treatment\".<\/p>\n
\"The government did nothing when it was told that the banking
\nindustry was about to collapse. Now the government comes with
\nhelp when most of the banks are dying,\" he said during a seminar
\non liquidation in the banking industry.<\/p>\n
Separately, Coordinating Minister for Economy, Finance and
\nIndustry Ginandjar Kartasasmita said in Bali on Wednesday that
\nabout 96 out of more than 200 banks in the country are currently
\ninsolvent with negative net worth of around US$40 billion.<\/p>\n
\"This is clearly an untenable long-term situation,\" Ginandjar
\nwas quoted by Dow Jones as saying at an Indonesia-Australia
\nbusiness forum.<\/p>\n
Hartojo said that even if the recapitalization program ran
\nsmoothly, it would be difficult to restore the country's ailing
\neconomy because even an improved banking system could not
\nfunction well if the uncertain political and social situation
\ncontinued.<\/p>\n
Tony A. Prasetiantono of Yogyakarta's Gadjah Mada University
\ntold the same seminar that the recapitalization program alone
\nwould not be effective in restoring the economy if the government
\ndid not settle other banking-related problems.<\/p>\n
\"The bank recapitalization will only be effective under the
\nright condition. That includes eliminating what we call moral
\nhazards in the banking industry, high interest rates, merger and
\nacquisition problems and law enforcement problems,\" Tony said.<\/p>\n
\"If these problems are not settled, then the recapitalization
\nprogram will only be like pouring water into a leaky can. It will
\nbe useless and meaningless, and will only result in huge losses
\nto the government,\" he said.<\/p>\n
Tony added that punitively high interest rates would make it
\nalmost impossible for banks to resume lending to businesses.<\/p>\n
The central bank's benchmark interest rate stood at 37.3
\npercent on Wednesday.<\/p>\n
The government estimates it will need about Rp 300 trillion
\n(over US$35.29 billion) to recapitalize some 80 private and state
\nbanks. It will issue long-term bonds to provide 80 percent of the
\nrecapitalization funds, while banks which are eligible to join
\nthe program will provide the remaining 20 percent.<\/p>\n
Banks which are eligible for the recapitalization program are
\nthose which have a capital adequacy ratio (CAR) of between less
\nthan 4 percent and minus 25 percent. These banks are classified
\nas category B banks.<\/p>\n
CAR is the ratio between equity capital and risk-weighted
\nassets.<\/p>\n
Category C banks are those with CARs of less than minus 25
\npercent. Banks in this category may be closed-down and liquidated
\nif the bank owners do not inject funds into the banks to raise
\ntheir CARs. Banks in category A are not required to join the
\nrecapitalization program because their CARs are at least 4
\npercent, the minimum level required by the government.<\/p>\n
Hartojo said that the recapitalization program was not a
\nsolution to reviving the moribund banking sector because it was
\nnot clear where the money for the program would come from.<\/p>\n
Both Hartojo and Tony said they were skeptical that the bonds
\nissued by the government to raise the recapitalization funds
\nwould be attractive to local or foreign investors.<\/p>\n
If the government offers high interest rates to attract bond
\ninvestors, the move could be counterproductive because it would
\nprompt banks to maintain high interest rates, they said.<\/p>\n
Another economist from Gadjah Mada University, Sri Adiningsih,
\nsaid that the country's bank restructuring program was not
\nprogressing quickly enough.<\/p>\n
Speaking at the same seminar, Sri nonetheless urged the
\ngovernment to go ahead with the recapitalization program because
\nfurther delays would only ruin the already crippled banking
\nsector.<\/p>\n
\"The restructuring is progressing too slow. Time is very
\nvaluable here. The longer it is delayed the more costly it will
\nbe,\" she said.<\/p>\n
In a related development, Glen Yusuf, chairman of the
\nIndonesian Bank Restructuring Agency, said on Wednesday that nine
\nbanks had confirmed their commitment to acquire 500 branch
\noffices of the insolvent banks to be closed on Saturday.<\/p>\n
\"Since the acquisition will also cover employees, at least
\n10,000 jobs, which would otherwise be wiped out by the closures,
\nwill be saved,\" Jusuf said after meeting with Minister of
\nManpower Fahmi Idris.<\/p>\n
Glen declined to identify the nine banks concerned. (gis\/rms)<\/p>", "url": "https:\/\/jawawa.id\/newsitem\/recapitalization-not-enough-to-cure-economy-1447893297", "image": "" }, "sponsor": "Okusi Associates", "sponsor_url": "https:\/\/okusiassociates.com" }