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)