Bambang defends program for bank recapitalization

Bambang defends program for bank recapitalization

JAKARTA (JP): The government has defended its plan to set
aside Rp 18 trillion (US$2.25 billion) of the 1999/2000 state
budget to recapitalize the country's beleaguered banks, saying it
was the least the country could do to help revive the banking
sector.

Finance Minister Bambang Subianto said on Monday night the
funds were crucial in freeing the country from the banking crisis
that had been eating up the economy for over a year.

"There are two choices: recapitalize or close down the banks.
Both moves need financial support, but the recapitalization
program does not need as much cash," he told a briefing on the
draft budget the night before it was unveiled by President B.J.
Habibie.

"Recapitalization is the only choice that we think is capable
of convincing the people that the banks that survive the crisis
will be those that are completely healthy," he said.

The government plans to issue bonds to finance the
recapitalization program amounting to over Rp 257.7 trillion.
But banks which participate in the program will only be injected
with cash from the yearly interest payment on the bonds.

Bambang said the government estimated it would spend Rp 34
trillion in interest payments for the banks for the coming fiscal
year.

Only Rp 18 trillion of the amount would come from the state
budget, while the remaining Rp 16 trillion would come from the
sales of the banks' assets, he said.

Bank Indonesia Governor Sjahril Sabirin said Tuesday after the
draft budget was announced by the President that the bond would
carry an interest rate of about 20 percent, 3 percent above the
government's own projection for inflation this year.

Bambang also claimed the recapitalization sum needed to
finance the banks which would make up 29 percent of the country's
gross domestic product was relatively small compared to similar
programs held in other countries.

In Korea, recapitalization programs took up 17 percent of the
GDP, in Thailand 29 percent and Malaysia 17 percent, he cited.

At least 70 out of the 166 local commercial banks would
participate in the program, and the government would provide 80
percent of the program's funds.

Those with a capital adequacy ratio (CAR) -- risk-weighted
assets ratio -- of less than minus 25 percent are not eligible to
participate in the program, and, unless they inject fresh
capital, would be closed down.

Banks with CAR over 4 percent do not have to be recapitalized.

Regional autonomy

Also speaking at Monday night's briefing, the State Minister
of National Development Planning, Boediono, said the government
was determined to loosen control over the provincial and lower
levels of administration in the country.

This was reflected in the draft budget in a bid to let the
less developed regions benefit from their own resources, Boediono
said.

The government will increase the portion of the development
budget for the provincial administration, as well as development
activities by shifting the budget away from the center.

The amount that will be allocated for the provincial
administration as development funds totals Rp 16.46 trillion.

It will let the provincial and lower government bodies
authorize approvals for development projects under their
jurisdiction, instead of them having to go through the central
government.

It will also adjust the block grants for the provinces by
taking account of a region's non-renewable natural resources as
well as their income.

Boediono said the shift in the emphasis of development toward
the less-developed areas of the country was part of the
government's efforts to develop stronger social safety net
programs and empower small-scale businesses and cooperatives.

The budget, for example, will now be apportioned mostly for
smaller-scale infrastructure projects in villages which can
employ many people instead of large projects as in the past.

"When we build infrastructure in villages we also provide jobs
for the locals," he said.

As part of the government's resolution to strengthen the small
and medium scale enterprises (SMEs) and cooperatives this year,
the government will set aside a substantial amount in the draft
budget.

This includes Rp 629.21 billion for small-scale industry and
Rp 4.39 trillion for the farming sector, in addition to the Rp
1.33 trillion apportioned for technical and capital assistance
for cooperatives and SMES. The draft budget also earmarks Rp
175.45 billion to support the recovery program in the trade
sector.

"This is the most we've ever given to develop small businesses
through budgetary support," Ginandjar said. (das)