Kadin slams govt policy toward ailing banks

JAKARTA (JP): The Indonesian Chamber of Commerce and Industry (Kadin) has criticized the government's approach to righting the country's rickety banks as "unrealistic".

Kadin's chairman Aburizal Bakrie characterized on Thursday the government's recapitalization program on national banks as ineffective in solving the sector's mounting problems.

"It is unrealistic because most of the domestic banks could not afford to meet the requirement," noted Aburizal.

"Kadin believes that the private sector domestic debt settlement program, announced by the government earlier, might be a better alternative in settling the banking problem. Or it will be better the two programs are combined."

Aburizal said the main weakness of the recapitalization program was in the central bank's policy on improving the capital structure of the institutions entering the program.

He said the program would not result in an improvement in the bank's liquidity because the fresh funds injected by the central bank were in the form of government bonds.

"It is still uncertain if the banks are allowed to sell the bonds to other parties... If the bank is not prohibited, the bank will only be able to sell them at discounts, meaning that the bank will still be at a loss."

The recapitalization program will not be able to settle the private sector's mounting bad debts to domestic banks, the main source of the country's banking woes, he said.

The government announced on Sept. 29 that domestic commercial banks with capital adequacy ratio (CAR) of between minus 25 percent and plus 4 percent may participate in a recapitalization program in which the government will provide up to 80 percent of the required funds.

The government will fund the capital injection with bonds and take equity in the bank in exchange for bonds.

In order to qualify for the recapitalization program, banks with CAR of below minus 25 percent would be given 30 days to inject fresh capital or improve their asset quality.

They will also be required to pay all the liquidity support they received from Bank Indonesia.

According to Kadin's chairman, the measure will fail if it does not touch the bank's nonperforming debts. He called on the government to combine the capitalization measure with the Jakarta Initiative program, launched earlier to help settle the corporate domestic debt problem.

The program is designed to complement the new bankruptcy law and the private sector foreign debt settlement mechanism provided by the Indonesian Debt Restructuring Agency (INDRA) in rehabilitating the sector.

According to the private debt settlement team, the country's private sector debt owed to domestic banks was Rp 691.7 trillion (US$76.85 billion) as of June 1998.

Aburizal also noted that the recapitalization program did not provide special treatment for banks which failed to comply with the minimum Capital Adequacy Requirement (CAR) of at least 4 percent this year.

The worsening of the capital performance due to the collapse of the rupiah should receive special attention, he said. (gis)