House approves plan to sell majority stake in Danamon

Dadan Wijaksana, The Jakarta Post, Jakarta

The House of Representatives approved on Tuesday plans to sell government shares in Bank Danamon in a decision that marks a shift from legislators' previous slow acceptance of state asset sales.

"We approve the government's proposal to divest at least 51 percent of Bank Danamon," said Commission IX deputy chairman Paskah Suzzeta in a hearing with Minister of Finance Boediono, State Minister of State Enterprises Laksamana Sukardi and the Indonesian Bank Restructuring Agency (IBRA), which is in charge of the sale.

IBRA owns a 99.4 percent stake in the publicly listed Bank Danamon after the government injected the bank with Rp 47 trillion (about US$5.1 billion) worth of recapitalization bonds in the wake of the 1997 economic crisis. The investing public owns the remainder.

Proceeds from the sale will be used to help cover the state budget's deficit this year.

IBRA does not require the House's approval on state asset sales, however, securing their support is seen as necessary to avoid a political backlash from selling national assets.

The relative smooth agreement of Bank Danamon's sale contrasts the previous sales of Bank Niaga and Bank Central Asia (BCA), when legislators objecting to the plan undermined one of the country's crucial reform programs.

As part of the International Monetary Fund's (IMF) reform program, the sale of nationalized banks aims at revitalizing the flagging banking sector with fresh capital and improved management.

IBRA gained control over local banks after the government spent about $60 billion on bonds to keep banks afloat following the 1997 economic crisis.

Although the House backs the IMF-led reform program, selling IBRA's shares in banks has been a sensitive issue because of the money spent on saving these banks.

Legislators demand high returns on the sales, arguing that five years after the crisis, IBRA's banks still depend on state- funded interest payments from the recapitalization bonds.

Bank Danamon recapitalization bonds have meanwhile fallen to Rp 18.8 trillion with interest payments varying between Rp 1 trillion to Rp 5 trillion over the next seven years.

Bank Negara Indonesia (BNI) banking analyst Ryan Kiryanto said on Monday that recurring problems with legislators could hamper IBRA's future bank sales.

"These problems should be dealt with first before launching another bank sale. The government and legislators need to settle their differences internally," he said.

Banking analyst Mirza Adityaswara agreed but added that both sides should have learned by now how to proceed with bank sales without stumbling over the same problems.

IBRA should have launched Bank Danamon's sale last July and finalized it by next month, however, problems surrounding the sale of Bank Niaga pushed back the schedule and officials said a deal was unlikely until early next year.

Legislators also agreed to sell up to a 20 percent stake in the bank on the market first, before selling a larger 51 percent stake to strategic investors later on.

"This will open the door to public involvement as widely as possible," Paskah of the Golkar faction said.

IBRA earlier explained that the initial sale was aimed at testing market interests while obtaining a benchmark price for the subsequent sale of a majority stake to strategic investors.