Banks remain unstable: Minister

The Jakarta Post, Jakarta

The country's banking sector remains in a weak condition despite the government's costly bailout program launched five years ago, according to State Minister of National Development Planning Kwik Kian Gie.

"After the costly effort on the part of the government to bail them out, the condition of our banks is still far from healthy.

"The reason they're surviving is because of the 'subsidy' they've enjoyed through the payment of interest and principal of the recapitalization bonds they hold," Kwik told legislators on Tuesday at a hearing with the House of Representatives Commission IX on financial affairs.

He cited as an example state Bank Mandiri, the country's largest bank, which as of September last year posted around Rp 5.1 trillion (about US$550 million) in net profit.

"But the profit was calculated after the government poured some Rp 15.1 trillion into the bank during the same period in interest payments for the recapitalization bonds held by Mandiri," Kwik added.

The bank currently holds around Rp 140 trillion worth of recapitalization bonds.

The government via the Indonesian Bank Restructuring Agency (IBRA) issued some Rp 430 trillion worth of bonds to help finance the recapitalization of several ailing banks. Each year, the state budget pays a huge amount of interest to the recapitalized banks that hold the bonds. This is the largest and costliest bank bailout in the country's history.

The same applies to other recapitalized banks, including Bank Negara Indonesia (BNI), Bank Rakyat Indonesia (BRI), Bank International Indonesia (BII), Bank Danamon, Bank Niaga and others, Kwik went on.

Kwik's remarks are the latest criticism on how the huge bailout has turned out to be fruitless, as improvement in the banking sector remains slow.

IBRA is in charge of restructuring the banks to turn them into financially healthy institutions. But as the agency's mandate is coming to an end, most banks remain in an unhealthy condition. The agency was set up in early 1998 and was to complete its job by the end of 2004. However, there are now plans to dissolve IBRA by August 2003.

Despite the fact that the intermediary role of the banks is on a rising trend from time to time, it's pace has yet to match the large costs to the country in bailing them out of trouble in the first place.