Fri, 14 Apr 2000

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)