House slams Lippo Bank recapitalization

House slams Lippo Bank recapitalization

JAKARTA (JP): The House of Representatives has demanded the
government either revoke, postpone, or revise the decree which
includes two privately owned banks in the first group of banks to
be recapitalized by the government.

The head of the House's commission in charge of the state
budget and banking, Taryo Tarmadi, said that the inclusion of
Lippo Bank and Bank Sembada Artanugroho (Sanho Bank) was against
an earlier agreement between the House and the government to
include only state and provincial development banks in the first
stage of the recapitalization program.

"It's up to the government to choose among these three
alternatives. But if the new policy doesn't satisfy us we'll
summon the finance minister again," he told reporters after a
special hearing on the bank recapitalization program with Finance
Minister Bambang Subianto late on Thursday.

The government quietly issued a decree on Jan. 18 stipulating
that Lippo and Sanho together with 10 other regional banks would
be the first batch of banks to be recapitalized by the
government.

The decree stipulated that Lippo would get Rp 3.75 trillion of
the Rp 4.29 trillion earmarked for the first stage of
recapitalization.

The decree was leaked to the press last week, raising
speculation that the cozy relations between Lippo's owners, the
Riady family, and President B.J. Habibie was responsible for the
giving the bank priority.

The government has repeatedly denied this allegation, arguing
that Lippo and Sanho were the only two private banks that had
fulfilled the requirements to join the recapitalization program,
including providing at least 20 percent of the funding needs in
cash.

The government has promised to provide up to 80 percent of the
recapitalization funds by issuing bonds.

The government has also been criticized for the lack of
transparency in the recapitalization program, which Bambang
admitted to in the meeting with the legislature and promised to
improve.

Bambang also told the House that the government had not
injected capital into the two banks as further scrutiny and
calculations were needed.

He said the capital injection would start when the government
had reached an agreement with the House on the proposed 1999/2000
state budget.

The House is expected to approve the budget proposal on Feb.
26.

The Ministry of Finance plans to sell bonds to the central
bank, and assign the proceeds to the recapitalized banks, which
will immediately use the cash to buy the bonds from Bank
Indonesia. The banks will receive fresh funds from the coupon
rates of the bonds.

The coupon rate is estimated to amount Rp 34 trillion, in
which Rp 18 trillion will be covered by the 1999/2000 state
budget, while the remaining Rp 16 trillion will come from the
sale of assets owned by troubled banks taken over by the
government.

Noted economist Anwar Nasution criticized the government for
the program's lack of transparency, but warned that political
criticism of the inclusion of Lippo Bank could put the country's
recapitalization program off track.

"In my personal view, Mochtar Riady (owner of Lippo) is one of
the country's best bankers, much better those who run state
banks," he told reporters following a seminar on Thursday. (rei)