IMF supports government's plan on BII rights issue

Dadan Wijaksana, The Jakarta Post, Jakarta

The International Monetary Fund (IMF) supported the government's proposal for Bank Internasional Indonesia (BII) to launch a rights issue, saying the move would help to strengthen the bank's capital base.

"The (rights issue) plan aims to further strengthen the capital base of BII, and we have full confidence that the government will succeed in this strategy," Daniel Citrin, IMF senior advisor for Asia Pacific told reporters on Wednesday.

Citrin currently heads an IMF delegation currently in town to review the country's progress in its economic reform programs.

The government, through the Indonesian Bank Restructuring Agency (IBRA), has come up with the rights issue plan in a bid to bailout the ailing bank.

But there has been strong criticism over the plan, with critics saying that it would only create more burden on the already strained state budget, and there was no guarantee that BII would truly become stronger in the future. Since 1999, the government has injected some Rp 21 trillion worth of bonds to help prevent the bank from going under.

Under the rights issue plan, the publicly-listed BII would issue new shares next month to raise around Rp 4.33 trillion (US$466 million) to boost its capital adequacy ratio (CAR) up to 17 percent, from minus 47 percent at the end of last year. The government, which controls 75 percent of the BII shares, will become a standby buyer of the new shares in case no public investors exercise their rights.

The government will use bonds to purchase the shares. The state budget will cover the interest rate of the bonds.

IBRA is expected to meet with the House of Representatives later this month to seek approval for the plan. Certain legislators have already expressed opposition to the use of more taxpayer money to bail out the bank.

Despite the criticism, however, IBRA Chairman Syafruddin Temenggung was standing firm on the plan, saying, "The rights issue shows the government's firm commitment to salvage the bank, and this is the best solution for the bank."

Asked about any contingency plans should the House reject the move, Syafruddin simply replied, "As far as we're concerned a rights issue is the optimum solution after we calculated other alternatives, including a merger or liquidation."

In a related development, Syafruddin also disclosed the setting up of a task force within the agency to be in charge of handling problems relating to the Sinar Mas Group (SMG), the former owners of BII.

The special team is headed by the agency's deputy chairman Sumantri Slamet in settling some $1.3 billion in debts owed by SMG, one of IBRA's biggest debtors.