BI Governor defends bank program

JAKARTA (JP): Bank Indonesia Governor Sjahril Sabirin said on Friday that the decision to include the privately-run Lippo Bank among the first 12 banks to receive government recapitalization funds had nothing to do with nepotism but was based on the bank's ability to meet the necessary requirements.

Sjahril argued that Lippo was awarded the lion's share of the first tranche of recapitalization funds because it was the largest among the first group of banks selected for recapitalization.

"It's not because Lippo's owner is close to President B.J. Habibie. Lippo is ready and has put up the required 20 percent share of the recapitalization funds," he told reporters following a meeting with President Habibie.

Sjahril, who was accompanied by Minister of Finance Bambang Subianto, said that other private banks in the country were not yet ready to join the recapitalization program.

The publicly-listed Lippo Bank, controlled by the well- connected Riady family, is one of the country's largest private banks.

A government decree dated Jan. 18 stipulated that Lippo Bank would get Rp 3.75 trillion out of Rp 4.29 trillion that has been allocated to fund bank recapitalization during the first phase of the program.

The remaining funds will be shared between 10 regional development banks, which are owned by provincial administrations, and one small private bank, Bank Sembada Artanugroho (Bank Sanho).

However, Bambang said the size of funds which would be made available to Lippo had not yet been finalized.

"That is not the final amount...it's just a ceiling. The final figure will be accounted for in the company's (bank's) statutes," he said.

The government has made it mandatory for all commercial banks to have a minimum capital adequacy ratio (CAR) of 4 percent by the end of March.

Banks with capital adequacy ratios of between minus 25 percent and less than 4 percent are eligible to join the government- sponsored bank recapitalization program. The government will provide 80 percent of the funds necessary to recapitalize banks qualifying for the program.

Over 200 of the country's commercial banks were audited during a preliminary phase of the program. Those found to be meeting the minimum capital adequacy ratio must now submit a business plan to the Minister of Finance and the central bank governor, who together will decide which banks qualify for the program.

The cost of recapitalizing the country's commercial banks has been placed at about one third of gross domestic product, or between US$35 billion and $40 billion. Twenty percent of this sum must be provided by bank owners and private investors.

The government plans to finance its 80 percent share of the program by issuing long-term bonds.

Interest payable on the bonds is expected to amount to Rp 34 trillion per year, of which Rp 16 trillion will come from the sale of banks' assets. The government has said the remaining Rp 18 trillion will come out of the 1999/2000 state budget, although the House of Representatives has yet to give its approval to this proposal.

The country's seven state banks are expected to receive around half of the funds available under the program.

The government will take non-voting shares in exchange for its 80 percent equity investment in the recapitalized banks. The banks themselves will be given the first option to repurchase the government's shares for the first three years after recapitalization, and only after that will the shares be made available to outside investors.

Bank recapitalization is seen as a vital step toward setting the economy on the road to recovery, but many observers have expressed reservations over the program as it currently stands.

The 10 regional banks which will receive funds during the first phase of the program are located in Aceh (Rp 80.94 billion), North Sumatra (Rp 259.93 billion), Bengkulu (Rp 6.30 billion), Lampung (Rp 18.58 billion), West Kalimantan (Rp 65.92 billion), East Kalimantan (Rp 15.97 billion), North Sulawesi (Rp 31.85 billion), Central Sulawesi (Rp 2.79 billion), West Nusa Tenggara (Rp 21.52 billion) and East Nusa Tenggara (Rp 10.82 billion). (rei)