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)