Banking on justice
Banking on justice
Although almost all agree that setting right the crippled
banking industry is crucial to lead the economy out of its
crisis, the government's bank recapitalization scheme is facing
stiff opposition from most analysts and the House of
Representatives. The proposed allocation of Rp 18 trillion of the
1999/2000 State Budget for the program has come under fire during
deliberations in the House, even from the dominant Golkar faction
noted mostly for simply toeing the official line.
It is extremely unfortunate that the element of the draft
budget provoking the greatest controversy is the bank
recapitalization plan so crucial for the eventual recovery of the
economy.
But the voice of dissent in the legislature is understandable
on a number of points.
The bone of contention against the recapitalization plan is
not as much the amount of the costs as the botched handling of
the banking crisis since early last year. It inevitably eroded
whatever little public confidence remained in the government's
ability to cope fairly and transparently with the moribund
banking sector. The lack of public trust has made it extremely
difficult for the government to make a better public case of the
urgent need for recapitalizing ailing banks.
There are, we think, several perplexing questions which must
first to be straightened out to make the proposal palatable to
taxpayers who bear the brunt of recapitalization costs.
Foremost among them is why capital standards for the program
were set so low -- covering institutions with capital adequacy
ratios (CAR) ranging from minus 25 percent to 4 percent -- that
more than 80 banks would qualify for a total recapitalization of
about Rp 300 trillion.
This lenient standard will not likely bolster confidence, both
domestic and foreign, in the recapitalized banks since the
international minimum capital standard is already 8 percent.
Quite the contrary, given the enormous risks inherent in the
continuing political uncertainty and the questionable auditing
standards in Indonesia, the minimum CAR should instead be set
higher than the international level.
Moreover, in view of the extreme lack of technical competence
in banking supervision, one of the main reasons behind the
banking crisis in the first place, the number of banks should be
made much smaller than current 200. The risk of failure in
bailing out so many banks is surely much bigger than focusing
limited resources on salvaging the few with strong management and
high integrity.
The government may argue that raising the capital standard
requirement would put most banks into liquidation at a huge cost
and a big risk of triggering a new wave of massive runs on almost
all banks, including those already with more than 4 percent CAR.
But pumping another Rp 300 trillion into so many ailing banks,
on top of the Rp 116 trillion they still owe in emergency
liquidity support from the central bank, would be a grave affront
to the public's sense of justice. It raises the question whether
the government is protecting depositors or simply bailing out
bank shareholders, many of whom are accused of violating the
legal lending limits and perceived to be engaged in underhanded
relationships with political leaders or key officials.
The sense of justice also requires the government not only to
disclose but deal firmly with those -- be they directors or
borrowers -- responsible for bankrupting the six state banks now
needing more than Rp 136 billion in recapitalization in order to
survive.
Finance minister Bambang Subianto's warning that if the banks
are not recapitalized the impact could be disastrous makes plain
economic sense. But recapitalizing so many ailing banks,
including those whose management and shareholders are notorious
for their lack of integrity, is not only economically insensible
and highly risky, but also a gross imposition on taxpayers
ultimately footing the bill.