IMF supports government's plan on BII rights issue

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.