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)