Bank recapitalization plan questioned
Bank recapitalization plan questioned
JAKARTA (JP): The House of Representatives urged the
government on Tuesday to scale back the massive allotment in the
state budget for the bank recapitalization program, and determine
the institutions worthy of the assistance.
During a budget hearing with finance minister Bambang
Subianto, the ruling Golkar faction in the legislature complained
the proposed Rp 18 trillion (US$2.4 billion) allotment was too
burdensome on the 1999/2000 State Budget.
"The Golkar faction expects the recapitalization program to be
selectively implemented and based on priorities," said Golkar
spokesperson Ery Chajaridipura.
He believed priority should be on state banks, with assistance
to private institutions earmarked for those which displayed
prudent management.
President B.J. Habibie last week unveiled the draft budget in
which the Rp 18 trillion would cover part of the coupon payment
of the bonds to be issued by the government for the purpose of
the bank recapitalization.
The total cost of the coupon payment will reach Rp 34
trillion, Rp 16 trillion of which will be financed through the
sales of the banks' assets.
Golkar, while acknowledging that restructuring and
recapitalizing the beleaguered banking sector were key for the
recovery of the country's economy, said the amount was too
expensive and must be reduced.
The other three factions in the House also called on the
government to cut back the allotted spending.
"Why is the amount so large that it will cause too much burden
on the state budget, which in turn will also become a burden for
the people who are already suffering?" said Indonesian Democratic
Party spokesman Bambang Mintoko.
"Why should the faults of those living luxuriously become the
responsibility of the people. This is very unfair and absurd."
The military faction also urged the government to set
priorities in its bank recapitalization program because the state
budget should be concentrated on helping the poor to survive the
18-month-old economic crisis.
The Moslem-based United Development Party declared the
"recapitalization budget is too large".
House members have been more outspoken in criticizing the
government following the end of the Soeharto regime last year.
The government estimates the bank recapitalization will amount
to at least Rp 300 trillion, in which it will provide 80 percent
of the funding requirement through the issuance of the bonds. The
remaining 20 percent will be provided by the banks.
Nearly 50 percent of the recapitalization cost will go to the
state banks.
Banks eligible to join the program are those with a capital
adequacy ratio (CAR) of between minus 25 percent and less than 4
percent. State banks will participate in the program although
most have CAR of less than minus 25 percent.
The government is requiring all of the country's more than 200
commercial banks to have a minimum CAR level of 4 percent by the
end of March this year or face likely closure.
CAR is the ratio between equity capital and risk-weighted
assets.
The government has said that 61 banks are eligible to join the
recapitalization program, 43 are ineligible unless they raise
their CAR level, and 62 banks will be exempted because their CAR
is more than 4 percent.
Analysts warn the recapitalization cost may become much larger
if the economic assumptions of the budget fail to be realized,
particularly amid the political uncertainty before the June 7
general election.
The government projects zero economic growth, an inflation
level of 17 percent and a rupiah-dollar exchange rate of Rp
7,500.
The House considered the assumptions "too optimistic" and said
it would seek government explanations about its calculations.
Many also doubt whether the banks could come up with the 20
percent funding necessary, particularly in the current economic
and social climate. (rei)