Economists urge transparency in recapitalization

Economists urge transparency in recapitalization

JAKARTA (JP): Economists defended the disputed
recapitalization program on Thursday, but urged the government to
be transparent in the selection of participating banks to prevent
a public outcry and suspicion over its credibility.

Transparency is vital for the government to gain support for
the costly scheme to keep afloat the country's beleaguered banks,
they said.

"The criteria of banks that could be recapitalized should be
clear and announced publicly," University of Indonesia economist
Anwar Nasution said at the commencement of the Indonesian
Management Institute.

He was referring to the controversy provoked by President B.J.
Habibie's Jan. 18 decree, which stipulates Rp 3.75 trillion
(US$431.03 million) in capital will be allocated private Lippo
Bank and Rp 18.46 billion to Bank Sembada Artanugroho (Sanho).

Ten regional development banks owned by provincial
administrations will be recapitalized at the same time.

The decision drew criticism because of an alleged lack of
transparency in the selection process. Especially galling to many
was that the lion's share of funding went to Lippo, owned by the
politically well-connected Riady family.

Anwar was not disturbed by the amount earmarked for Lippo.

"In my opinion, Mochtar Riady is one of our best bankers. He
is better than the key staff of state-owned banks."

He queried the motives of critics of the decision, saying the
issue was "politicized" to curry public support.

"Legislators, especially, have started to adopt a populist
attitude: 'why is the money going to Mochtar Riady instead of
some satay vendor from Madura?' This populist attitude will
destroy the order of our economy."

Bank analysts Rijanto and I Nyoman Moena agreed the
controversy over Lippo and Sanho was triggered by the
government's failure to clarify the issue.

They also regretted that the decree listing the first batch of
the program's participants was issued before the draft state
budget was deliberated by the House of Representatives.

The government estimates it will need Rp 300 trillion to
recapitalize about 80 private and state banks.

It will issue bonds to provide 80 percent of the funds, and
the interest payment will be drawn from the state budget. The
banks will provide the remaining 20 percent.

Moena was concerned the controversy would make it more
difficult for banks to participate in the recapitalization
program, even those already eligible.

"Are we going to let a bank become a victim because of the
government's failure to be transparent?" he said.

Rijanto said failure to clarify the issue would prove a
stumbling block to other banks prepared to inject the 20 percent
of recapitalization funding and submit a required "business
plan".

"If a bank already submitted a business plan and is willing to
inject the required 20 percent of fresh funds, are they going to
have to wait until the matter on the bonds issuance becomes
clear?"

The Indonesian Prosperous Labor Union is demanding the
government announce publicly the results of due diligence of
local banks.

It also said the recapitalization program should not start
until the government issues the decree on the bonds, which would
require approval from the House of Representatives.

The International Monetary Fund director for the Asia Pacific,
Hubert Neiss, said on Wednesday night that the recapitalization
program could only be implemented after the House stamped its
approval on the bond issuance.

"The government has to issue bonds and the interest payments
would be taken out of the state budget, which must get the
approval of the House," Neiss was quoted by Antara as saying.

Anwar stressed that the recapitalization program was a crucial
step toward recovery because it could bring down bank interest
rates and loosen the credit crunch. (das)