BI mulls temporary measures to speed economic recovery

BI mulls temporary measures to speed economic recovery

JAKARTA (JP): Bank Indonesia deputy governor Subarjo
Joyosumarto said on Thursday that the central bank was
considering to launch temporary measures to help accelerate the
country's economic recovery.

Subarjo said the new measures might include a guarantee on new
lending made by banks to debtor companies which were being
restructured.

He said the guarantee would eliminate the lending risk, thus
allowing the bank to be exempted from the requirement of setting
aside a provision for the loans.

He said this would ensure that the bank's capital adequacy
ratio (CAR) would not drop below the minimum 4 percent
requirement.

"But this exemption is only temporary and it will be stopped
once the economy has recovered," he told reporters at his office.

Subarjo said the new measure was part of the efforts by the
central bank to help expedite the country's corporate
restructuring program.

He explained that the central bank would start focusing on
debt restructuring after the bank restructuring and
recapitalization program was completed in June.

He said the central bank would cooperate with other related
government institutions.

He said despite the near completion of the bank restructuring
and recapitalization program, the country's banking institutions
were still facing obstacles in resuming lending because of slow
progress in the corporate restructuring side.

Indonesia's business sector has long urged the banking
industry to resume lending. But the banks will not channel fresh
money until the huge amount of nonperforming loans (NPLs) owed by
the real sector have been restructured.

Over Rp 200 trillion worth of NPLs have been transferred to
the Indonesian Bank Restructuring Agency (IBRA) to be
restructured.

Part of the NPLs handled by IBRA might be transferred to the
Jakarta Initiative Task Force (JITF) particularly in the case
where IBRA was a minority creditor.

JITF is a government-sponsored debt restructuring agency. It
is also designed to facilitate the restructuring of some US$70
billion in private sector overseas debts.

The government had earlier promised regulatory incentives
including tax breaks for debtors who showed good faith to
negotiate and repay their debts, while uncooperative debtors
would risk being transferred to the Attorney General's Office for
bankruptcy proceedings.

Separately, JITF chairman Laksamana Sukardi said on Thursday
that the incentives would be ready soon.

"The tax break facility for companies being restructured will
be realized in two months time," Laksamana told reporters on the
sidelines of a seminar.

He said the facility was included in the new tax law currently
being drafted with the House of Representatives.

The draft tax law is expected to be approved by the House some
time in June.

Laksamana said the tax incentive included an installation of
tax obligations, deferred tax payment and a reduction of the tax
rate or amount to be paid.

Many Indonesian companies have simply stopped servicing their
debts, particularly after the rupiah crashed in terms of value to
the U.S. dollar in the middle of 1997 and the economic
contraction that followed.

Subarjo said the other temporary banking measures were a
policy on the legal lending limit and the CAR requirement. He
declined to elaborate.

Elsewhere, Subarjo warned the country's 162 banks that they
must have a minimum CAR level of 8 percent by the end of 2001,
and an NPL size of not more than 5 percent or they would run the
risk of serious consequences, including liquidation.

He said banks must have an 8 percent CAR level to be able to
support the country's full economic recovery, projected to occur
in 2002.

Subarjo added that all banks must also have a minimum CAR
level of 4 percent by the end of June.

He said banks failing to meet the deadline would either be
closed or recapitalized again by the government, depending on
which measure cost less.

He also said the average CAR level of the country's 162 banks
in January 2000 was 7.15 percent.

The two largest banks are Bank Bali and state Bank Tabungan
Negara (BTN).

The recapitalization program of Bank Bali, which was
nationalized by the government, was disrupted for a long time
following its high profile scandal last year. (rei/udi)