Analysts fault recapitalization budget for banks

Analysts fault recapitalization budget for banks

JAKARTA (JP): Analysts have criticized the government's
proposal to channel Rp 18 trillion (US$2.31 billion) from the
state budget into the bank recapitalization program, saying the
proportion was too high for such an austere budget.

Bank analyst Rijanto Sastroatmodjo expressed doubts on
Wednesday that the House of Representatives would approve the
government's proposed figure for the program because it would be
an unsound political move.

"The amount to restructure the banking sector is much too high
compared to the allocations for other sectors, so the House would
likely be reluctant to approve it," bank analyst Rijanto
Sastroatmodjo was quoted by Antara as saying.

The government plans to issue bonds to finance the bank
recapitalization program, which will carry an estimated total
cost of Rp 257.7 trillion.

In the 1999/2000 fiscal year which starts in April, the
government estimates that interest payments on the bonds will
cost Rp 34 trillion, Rp 18 trillion of which would be drawn from
the state budget while the remaining Rp 16 trillion would come
from the sale of the banks' nonperforming assets.

Legislator Priyo Budi Santoso of the ruling Golkar faction
said the government's plan to spend Rp 18 trillion of the budget
on the program was too high, especially considering its efforts
to tighten spending in the coming fiscal year.

"The amount is mind-boggling, dumbfounding; it must be
recalculated," Budi said after President B.J. Habibie announced
the budget on Tuesday.

He warned the government against "placing too large a bet" on
the recovery of the banking industry by spending such a large
amount of money.

"If the program fails it will worsen the economy," he added.

At least 70 of the 166 local commercial banks would
participate in the recapitalization program, with the government
providing 80 percent of the program's funds.

Banks with a capital adequacy ratio (CAR) -- a risk weighted
asset ratio -- of less than minus 25 percent will not be
recapitalized, and, unless they inject fresh capital, will be
closed down.

Those with CARs over 4 percent do not have to be
recapitalized.

Economist Umar Juoro did not object to the proposed budget for
the program, but said the government should only maintain banks
with the potential to drive the economy.

The government should close down banks with CARs of below
minus 25 percent, he added.

"It is really hard to expect a bank with a CAR below minus 25
percent to function well again, even after being recapitalized,"
he said.

Economist Didik J. Rachbini said he doubted that the
government would be able to raise Rp 16 trillion from the sale of
bank assets considering that the economy would likely remain
stagnant this year. (das)