Govt bonds to bear interest rate below 20%: Official

Govt bonds to bear interest rate below 20%: Official

JAKARTA (JP): The interest rate on government bonds for the
recapitalization of nine private banks is expected to be less
than 20 percent, Bank Indonesia director Subarjo Joyosumarto said
over the weekend.

He said the low rate was possible because inflation in
1999/2000 fiscal year was projected to be lower than the 17
percent assumed in the state budget.

"But the exact interest rate level is still being calculated,"
he said on Saturday.

Subarjo also said the recapitalization of the private banks
was expected to start on April 15, earlier than the April 21
deadline. The government is expected to inject up to 80 percent
of the recapitalization funding requirement through the bond
issue, with bank owners required to provide the remainder in
cash.

"If there are no obstacles, the Bank Indonesia governor and
the finance minister will soon sign the (recapitalization)
agreement with the owners of the nine banks," he said.

The government-sponsored recapitalization program is designed
to bring the banks' capital adequacy ratio (CAR) to the minimum 4
percent requirement.

Subarjo said the total recapitalization funding for the nine
banks would be based on the due diligence audit from the December
1998 database.

He said the banks must provide any additional cash needed if
they continued to suffer negative interest rate spread between
January and April. Negative spread would undermine the CAR.

Banks to be recapitalized are publicly listed Bank
Internasional Indonesia, Bank Lippo, Bank Niaga, Bank Bali and
Bank Universal, and nonlisted Bank Bukopin, Bank Artha Media,
Bank Prima Express and Bank Patriot.

The government earlier said the owners of the nonlisted banks
had already deposited their 20 percent funding obligations in the
central bank, while listed banks would raise the funds by
offering rights issue, which began last week.

Subarjo said the state budget would shoulder a lighter burden
because of the lower than expected bond interest rate.

The government initially set aside a total of Rp 34 trillion
for financing interest on the bonds during the 1999/2000 fiscal
year. Under the plan, Rp 17 trillion is to be covered by the
budget, with the rest to be derived from sale of assets of
liquidated banks now under the control of the Indonesian Bank
Restructuring Agency.

Subarjo did not disclose whether the government would set the
bond interest rate at a fixed rate or at 3 percent above
inflation.

The inflation rate has followed a declining trend over the
past couple of months, with 0.18 percent deflation in March over
February.

BI officials are optimistic inflation will remain low this
month despite uncertainty concerning the June general election.

BI Governor Sjahril Sabirin said last week the lower inflation
rate and a stable rupiah would provide greater prospects for a
decline in the domestic interest rate.

At a weekly auction on Wednesday, the one-month SBI promissory
note was offered at an interest rate of 36.40 percent, down from
37.42 percent the previous week.

Banks are now offering interest rates of between 39 percent
and 40 percent for a one-month time deposit.

Apart from those chosen for recapitalization, 38 private banks
were closed by the government on March 13 and seven taken over
and 74 other banks were assessed as sound with CAR of 4 percent
or larger.

The bank restructuring program is designed to rebuild the
country's hobbled banking industry, an essential step for
economic recovery. (rei)