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)