Bank recapitalization key to economic recovery

Bank recapitalization key to economic recovery

JAKARTA (JP): Finance Minister Bambang Subianto on Friday
called for House of Representatives support of the state budget
appropriation to cover the costs of the bank recapitalization
program, arguing that it is crucial for the country's economic
recovery.

The bank recapitalization is pivotal for economic recovery as
stronger banks would be able to resume lendings that would grease
the wheels of business, Bambang said.

"Recapitalized banks will be in a much better position to
restore the public's confidence in the financial system and would
go a long way in recreating investor confidence in the economy,"
he told a meeting with the House Commission VIII (finance,
budget).

Under this program, the government would put up 80 percent of
the recapitalization funds of Rp 257.5 trillion (US$34.2 billion)
through the issuance of bonds. Bank owners will cover the
remaining 20 percent.

Bambang refuted some estimates that put the costs of the
program to the state budget in excess of Rp 50 trillion, saying
Rp 15 trillion would be a more accurate estimate.

Many House members and analysts have criticized the
recapitalization scheme as too burdensome on the state budget,
arguing that the government should instead let insolvent banks
die.

At the meeting, the minister cited several key assumptions for
preparing the next budget starting in April.

The minister said that as inflation was projected between 15
and 20 percent next year, compared to more than 75 percent this
year, interest rates could likely decrease to 20-30 percent, down
sharply from as high as 70 percent in September and 38 percent
last week.

"Lower interest rates will surely stimulate economic
activities," he added.

Bambang projected a plus or minus 1 percent growth in the
gross domestic product next year, compared to an estimated
contraction of 15 percent this year.

"However, if the bank recapitalization program fails, all
these projections may not materialize and our economy will remain
in a depressed state," he said in an argument to draw House
support for the necessary budgetary appropriation for the
program.

He added that the next budget would assume international oil
prices in the range of between US$11.50 and US$12.50 per barrel
and a rupiah exchange rate of between Rp 7,000 and Rp 8,000 to
the American dollar.

The government will recapitalize 70 out of 166 national
commercial banks, including six state banks, 49 private banks
(including four taken over by the government) and 15 provincial
development banks.

The six state banks alone will take up Rp 136.44 trillion or
53 percent of the total recapitalization fund.

Separately, banking analyst Sutan Remy Sjahdeni said on Friday
most private banks would be unlikely to cover 20 percent of their
recapitalization funds.

"Those who can afford to do so may also be unwilling to put up
the funds due to uncertainty over the security and political
conditions. Obviously, foreign investors are out of the question
at least until the year 2000," Sjahdeni said.

Sjahdeni observed that many owners had completely lost hope
for their banks even after recapitalization.

"I'm sure many bank owners no longer have any confidence in
the future of their banks, even after the recapitalization," he
said, adding some owners would probably prefer having them
liquidated. (das/aly)